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Contract structure and risk aversion in longevity risk transfers

Author

Listed:
  • Landriault, David
  • Li, Bin
  • Li, Hong
  • Zhang, Yuanyuan

Abstract

This paper develops an economic framework for optimal longevity risk transfer between a buyer and a seller with different risk aversions. We compare static (long-dated, pre-committed) and dynamic (short-dated, rolled) longevity swaps in a Stackelberg game. We find that static contracts are preferred when the buyer is more risk averse, while dynamic contracts are preferred when the seller is more risk averse. For the capital-market setting, we extend the benchmark by introducing seller-side ambiguity about the mortality distribution and robust max-min valuation. Even moderate ambiguity can eliminate the market for static swaps, while dynamic designs remain viable. We then extend the analysis to index-based swaps with basis risk: relative to indemnity swaps, optimal loadings are lower and gains are smaller for both parties, though the static-dynamic preference pattern is unchanged.

Suggested Citation

  • Landriault, David & Li, Bin & Li, Hong & Zhang, Yuanyuan, 2026. "Contract structure and risk aversion in longevity risk transfers," Insurance: Mathematics and Economics, Elsevier, vol. 128(C).
  • Handle: RePEc:eee:insuma:v:128:y:2026:i:c:s0167668726000417
    DOI: 10.1016/j.insmatheco.2026.103251
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    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets

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