IDEAS home Printed from
   My bibliography  Save this article

Hedging Pension Longevity Risk: Practical Capital Markets Solutions


  • Coughlan Guy D.

    (JP Morgan)

  • Epstein David

    (JP Morgan in London)

  • Khalaf-Allah Marwa

    (JP Morgan in London)

  • Watts Chris S.

    (JP Morgan in London)


Longevity risk transfer via the capital markets is now a reality. Pension plans and annuity providers can hedge longevity risk with capital markets instruments, reflecting the emergence of a new market that is poised to take off. The key players in this market are hedgers (pension plans and annuity providers), intermediaries (investment banks and broker-dealers) and end investors (ILS funds, hedge funds, endowments, etc.). We argue that the development of liquidity in this market depends on the acceptance of longevity indices and the development of standardized instruments to transfer this risk.Until now, hedgers of longevity risk have almost exclusively approached the subject from the perspective of indemnification (100 percent risk transfer). We propose an alternative approach based on a risk management paradigm that does not require 100 percent risk transfer and is consistent with the way in which other pension-related risks are managed. To this end we present a framework for longevity hedging cantered on standardized indexbased hedges. This framework uses a building-block approach in which standardized hedge building blocks are combined to provide a longevity hedge tailored to the specific demographics, benefit structure and mortality table of any pension plan. The effectiveness of this hedge is maximized by careful calibration of the mix of building blocks and then verified in hedge effectiveness tests.We also discuss customized longevity hedges that will be preferred by some hedgers, who are unconcerned by the lower liquidity and onerous requirements for data disclosure associated with these hedges, and are prepared to pay the additional premium above the cost of a standardized hedge.

Suggested Citation

  • Coughlan Guy D. & Epstein David & Khalaf-Allah Marwa & Watts Chris S., 2008. "Hedging Pension Longevity Risk: Practical Capital Markets Solutions," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(1), pages 1-25, September.
  • Handle: RePEc:bpj:apjrin:v:3:y:2008:i:1:n:5

    Download full text from publisher

    File URL:
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.

    As the access to this document is restricted, you may want to search for a different version of it.


    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

    Cited by:

    1. Biffis, Enrico & Blake, David, 2010. "Securitizing and tranching longevity exposures," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 186-197, February.
    2. David Blake & Andrew Cairns & Guy Coughlan & Kevin Dowd & Richard MacMinn, 2013. "The New Life Market," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 80(3), pages 501-558, September.

    More about this item


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:apjrin:v:3:y:2008:i:1:n:5. See general 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: (Peter Golla). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.