The role of longevity bonds in optimal portfolios
AbstractA longevity bond pays coupons which are proportional to the survival rate of a given population. In such a way the longevity risk becomes hedgeable on the financial market. In our model there are: (i) a longevity bond as a derivative on the population survival rate, (ii) a bond as a derivative on the stochastic instantaneously riskless interest rate, and (iii) a stock. The investor maximizes the expected (CRRA) utility of his intertemporal consumption. In such a framework we demonstrate that the amount of wealth invested in the longevity bond reduces the portfolio weight of the bond without affecting neither the weight of the stock nor the weight of the riskless asset.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by University of Brescia, Department of Economics in its series Working Papers with number 0601.
Date of creation: 2006
Date of revision:
Contact details of provider:
Postal: Via S. Faustino 74/B, 25122 Brescia
Web page: http://www.unibs.it/atp/page.1019.0.0.0.atp?node=224
More information through EDIRC
Other versions of this item:
- NEP-ALL-2006-02-12 (All new papers)
- NEP-CFN-2006-02-12 (Corporate Finance)
- NEP-FMK-2006-02-12 (Financial Markets)
- NEP-UPT-2006-02-12 (Utility Models & Prospect Theory)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Thaleia Zariphopoulou, 2001. "A solution approach to valuation with unhedgeable risks," Finance and Stochastics, Springer, vol. 5(1), pages 61-82.
- Hainaut, Donatien & Devolder, Pierre, 2007. "Management of a pension fund under mortality and financial risks," Insurance: Mathematics and Economics, Elsevier, vol. 41(1), pages 134-155, July.
- Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
- George CHACKO & Luis M. VICEIRA, 1999.
"Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets,"
FAME Research Paper Series
rp11, International Center for Financial Asset Management and Engineering.
- George Chacko & Luis M. Viceira, 2005. "Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets," Review of Financial Studies, Society for Financial Studies, vol. 18(4), pages 1369-1402.
- George Chacko & Luis M. Viceira, 1999. "Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets," NBER Working Papers 7377, National Bureau of Economic Research, Inc.
- Chacko, George & Viceira, Luis M, 2005. "Dynamic Consumption and Portfolio Choice with Stochastic Volatility in Incomplete Markets," CEPR Discussion Papers 4913, C.E.P.R. Discussion Papers.
- Wachter, Jessica A., 2002. "Portfolio and Consumption Decisions under Mean-Reverting Returns: An Exact Solution for Complete Markets," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 37(01), pages 63-91, March.
- Wachter, Jessica A., 2003. "Risk aversion and allocation to long-term bonds," Journal of Economic Theory, Elsevier, vol. 112(2), pages 325-333, October.
- Kim, Tong Suk & Omberg, Edward, 1996. "Dynamic Nonmyopic Portfolio Behavior," Review of Financial Studies, Society for Financial Studies, vol. 9(1), pages 141-61.
- Dahl, Mikkel, 2004. "Stochastic mortality in life insurance: market reserves and mortality-linked insurance contracts," Insurance: Mathematics and Economics, Elsevier, vol. 35(1), pages 113-136, August.
- Richard, Scott F., 1975. "Optimal consumption, portfolio and life insurance rules for an uncertain lived individual in a continuous time model," Journal of Financial Economics, Elsevier, vol. 2(2), pages 187-203, June.
- Cox, John C. & Huang, Chi-fu, 1991. "A variational problem arising in financial economics," Journal of Mathematical Economics, Elsevier, vol. 20(5), pages 465-487.
- Merton, Robert C, 1969. "Lifetime Portfolio Selection under Uncertainty: The Continuous-Time Case," The Review of Economics and Statistics, MIT Press, vol. 51(3), pages 247-57, August.
- Babbs, Simon H. & Nowman, K. Ben, 1999. "Kalman Filtering of Generalized Vasicek Term Structure Models," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 34(01), pages 115-130, March.
- Simon Babbs & K. Nowman, 1998. "Econometric Analysis of a Continuous Time Multi-Factor Generalized Vasicek Term Structure Model: International Evidence," Asia-Pacific Financial Markets, Springer, vol. 5(2), pages 159-183, May.
- Cox, John C. & Huang, Chi-fu, 1989. "Optimal consumption and portfolio policies when asset prices follow a diffusion process," Journal of Economic Theory, Elsevier, vol. 49(1), pages 33-83, October.
- Rudolf, Markus & Ziemba, William T., 2004. "Intertemporal surplus management," Journal of Economic Dynamics and Control, Elsevier, vol. 28(5), pages 975-990, February.
- Griselda Deelstra & Martino Grasselli & Pierre-François Koehl, 2000. "Optimal investment strategies in a CIR framework," ULB Institutional Repository 2013/7594, ULB -- Universite Libre de Bruxelles.
- Menoncin, Francesco, 2002. "Optimal portfolio and background risk: an exact and an approximated solution," Insurance: Mathematics and Economics, Elsevier, vol. 31(2), pages 249-265, October.
- Lioui, Abraham & Poncet, Patrice, 2001. "On optimal portfolio choice under stochastic interest rates," Journal of Economic Dynamics and Control, Elsevier, vol. 25(11), pages 1841-1865, November.
- R. C. Merton, 1970.
"Optimum Consumption and Portfolio Rules in a Continuous-time Model,"
58, Massachusetts Institute of Technology (MIT), Department of Economics.
- Merton, Robert C., 1971. "Optimum consumption and portfolio rules in a continuous-time model," Journal of Economic Theory, Elsevier, vol. 3(4), pages 373-413, December.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Matteo Galizzi).
If references are entirely missing, you can add them using this form.