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Liability-driven investment in longevity risk management

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  • Helena Aro
  • Teemu Pennanen

Abstract

This paper studies optimal investment from the point of view of an investor with longevity-linked liabilities. The relevant optimization problems rarely are analytically tractable, but we are able to show numerically that liability driven investment can significantly outperform common strategies that do not take the liabilities into account. In problems without liabilities the advantage disappears, which suggests that the superiority of the proposed strategies is indeed based on connections between liabilities and asset returns.

Suggested Citation

  • Helena Aro & Teemu Pennanen, 2013. "Liability-driven investment in longevity risk management," Papers 1307.8261, arXiv.org.
    • Handle: RePEc:arx:papers:1307.8261
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    References listed on IDEAS

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    1. David Blake & Andrew Cairns & Kevin Dowd & Richard MacMinn, 2006. "Longevity Bonds: Financial Engineering, Valuation, and Hedging," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 647-672, December.
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    Cited by:

    1. Youssouf A. F. Toukourou & Franc{c}ois Dufresne, 2015. "ON Integrated Chance Constraints in ALM for Pension Funds," Papers 1503.05343, arXiv.org.

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