IDEAS home Printed from https://ideas.repec.org/p/hal/journl/hal-00417800.html
   My bibliography  Save this paper

Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges

Author

Listed:
  • Pauline Barrieu

    () (Department of Statistics - LSE - London School of Economics and Political Science)

  • Harry Bensusan

    (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Nicole El Karoui

    () (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Caroline Hillairet

    () (CMAP - Centre de Mathématiques Appliquées - Ecole Polytechnique - X - École polytechnique - CNRS - Centre National de la Recherche Scientifique)

  • Stéphane Loisel

    () (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon)

  • Claudia Ravanelli

    () (Swiss Financial Institute - EPFL - Ecole Polytechnique Fédérale de Lausanne)

  • Yahia Salhi

    () (SAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon, CERDALM - SCOR Global Life)

Abstract

This article investigates the latest developments in longevity risk modelling, and explores the key risk management challenges for both the financial and insurance industries. The article discusses key definitions that are crucial for the enhancement of the way longevity risk is understood; providing a global view of the practical issues for longevity-linked insurance and pension products that have evolved concurrently with the steady increase in life expectancy since 1960s. In addition, the article frames the recent and forthcoming developments that are expected to action industry-wide changes as more effective regulation, designed to better assess and efficiently manage inherited risks, is adopted. Simultaneously, the evolution of longevity is intensifying the need for capital markets to be used to manage and transfer the risk through what are known as Insurance-Linked Securities (ILS). Thus, the article will examine the emerging scenarios, and will finally highlight some important potential developments for longevity risk management from a financial perspective with reference to the most relevant modelling and pricing practices in the banking industry.

Suggested Citation

  • Pauline Barrieu & Harry Bensusan & Nicole El Karoui & Caroline Hillairet & Stéphane Loisel & Claudia Ravanelli & Yahia Salhi, 2012. "Understanding, Modeling and Managing Longevity Risk: Key Issues and Main Challenges," Post-Print hal-00417800, HAL.
  • Handle: RePEc:hal:journl:hal-00417800
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-00417800v2
    as

    Download full text from publisher

    File URL: https://hal.archives-ouvertes.fr/hal-00417800v2/document
    Download Restriction: no

    Other versions of this item:

    References listed on IDEAS

    as
    1. Emmanuelle Cambois & Caroline Laborde & Jean-Marie Robine, 2008. "La "double peine" des ouvriers : plus d’années d’incapacité au sein d’une vie plus courte," Population et Sociétés 441, Institut National d'Études Démographiques (INED).
    2. Lars Peter Hansen & José A. Scheinkman, 2009. "Long-Term Risk: An Operator Approach," Econometrica, Econometric Society, vol. 77(1), pages 177-234, January.
    3. Renshaw, A. E. & Haberman, S., 2003. "On the forecasting of mortality reduction factors," Insurance: Mathematics and Economics, Elsevier, vol. 32(3), pages 379-401, July.
    4. Gourieroux, C. & Monfort, A., 2008. "Quadratic stochastic intensity and prospective mortality tables," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 174-184, August.
    5. Christian Gollier, 2008. "Discounting with fat-tailed economic growth," Journal of Risk and Uncertainty, Springer, vol. 37(2), pages 171-186, December.
    6. Biffis, Enrico, 2005. "Affine processes for dynamic mortality and actuarial valuations," Insurance: Mathematics and Economics, Elsevier, vol. 37(3), pages 443-468, December.
    7. Christian Gourieroux & Razvan Sufana, 2003. "Whishart Quadratic Term Structure Models," Working Papers 2003-50, Center for Research in Economics and Statistics.
    8. Stéphane Loisel, 2010. "Joint modeling of portfolio experienced and national mortality: A co-integration based approach," Post-Print hal-00502852, HAL.
    9. Pitacco, Ermanno, 2004. "Survival models in a dynamic context: a survey," Insurance: Mathematics and Economics, Elsevier, vol. 35(2), pages 279-298, October.
    10. Andrew J. G. Cairns & David Blake & Kevin Dowd, 2006. "A Two-Factor Model for Stochastic Mortality with Parameter Uncertainty: Theory and Calibration," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 687-718.
    11. Schrager, David F., 2006. "Affine stochastic mortality," Insurance: Mathematics and Economics, Elsevier, vol. 38(1), pages 81-97, February.
    12. Stéphane Loisel, 2008. "Inter-age correlation in stochastic mortality models," Post-Print hal-00397267, HAL.
    13. Pablo Antolin & Hans J. Blommestein, 2007. "Governments and the Market for Longevity-indexed Bonds," Financial Market Trends, OECD Publishing, vol. 2007(1), pages 153-175.
    14. Lazrak, Ali & Zapatero, Fernando, 2004. "Efficient consumption set under recursive utility and unknown beliefs," Journal of Mathematical Economics, Elsevier, vol. 40(1-2), pages 207-226, February.
    15. 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.
    16. Renshaw, A.E. & Haberman, S., 2006. "A cohort-based extension to the Lee-Carter model for mortality reduction factors," Insurance: Mathematics and Economics, Elsevier, vol. 38(3), pages 556-570, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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


    Cited by:

    1. Yahia Salhi & Stéphane Loisel, 2012. "Basis risk modelling: a co-integration based approach," Working Papers hal-00746859, HAL.
    2. Christophette Blanchet-Scalliet & Diana Dorobantu & Yahia Salhi, 2016. "A Model-Point Approach to Indifference Pricing of Life Insurance Portfolios with Dependent Lives," Working Papers hal-01258645, HAL.
    3. Bohm, Thomas & Waldvogel, Felix, 2012. "Etablierung eines außerbörslichen Kapitalmarktes für das Langlebigkeitsrisiko," Bayreuth Working Papers on Finance, Accounting and Taxation (FAcT-Papers) 2012-02, University of Bayreuth, Chair of Finance and Banking.
    4. Helena Aro & Teemu Pennanen, 2013. "Liability-driven investment in longevity risk management," Papers 1307.8261, arXiv.org.
    5. D’Amato, Valeria & Haberman, Steven & Piscopo, Gabriella & Russolillo, Maria, 2012. "Modelling dependent data for longevity projections," Insurance: Mathematics and Economics, Elsevier, vol. 51(3), pages 694-701.
    6. repec:eee:insuma:v:76:y:2017:i:c:p:75-86 is not listed on IDEAS
    7. Risk, J. & Ludkovski, M., 2016. "Statistical emulators for pricing and hedging longevity risk products," Insurance: Mathematics and Economics, Elsevier, vol. 68(C), pages 45-60.
    8. Bensusan, Harry & El Karoui, Nicole & Loisel, Stéphane & Salhi, Yahia, 2016. "Partial splitting of longevity and financial risks: The longevity nominal choosing swaptions," Insurance: Mathematics and Economics, Elsevier, vol. 68(C), pages 61-72.
    9. repec:bla:jrinsu:v:84:y:2017:i:3:p:987-1023 is not listed on IDEAS
    10. Yahia Salhi & Pierre-Emmanuel Thérond & Julien Tomas, 2016. "A Credibility Approach of the Makeham Mortality Law," Post-Print hal-01232683, HAL.
    11. Man Chung Fung & Gareth W. Peters & Pavel V. Shevchenko, 2017. "Cohort effects in mortality modelling: a Bayesian state-space approach," Papers 1703.08282, arXiv.org.
    12. Francesco Menoncin & Luca Regis, 2015. "Longevity assets and pre-retirement consumption/portfolio decisions," Working Papers 2/2015, IMT Institute for Advanced Studies Lucca, revised May 2015.
    13. Christophette Blanchet-Scalliet & Diana Dorobantu & Yahia Salhi, 2017. "A Model-Point Approach to Indifference Pricing of Life Insurance Portfolios with Dependent Lives," Post-Print hal-01258645, HAL.
    14. Ekheden, Erland & Hössjer, Ola, 2015. "Multivariate time series modeling, estimation and prediction of mortalities," Insurance: Mathematics and Economics, Elsevier, vol. 65(C), pages 156-171.
    15. Clemente De Rosa & Elisa Luciano & Luca Regis, 2015. "Basis risk in static versus dynamic longevity-risk hedging," Carlo Alberto Notebooks 425, Collegio Carlo Alberto, revised Oct 2015.
    16. Katrien Antonio & Anastasios Bardoutsos & Wilbert Ouburg, 2015. "Bayesian Poisson log-bilinear models for mortality projections with multiple populations," BAFFI CAREFIN Working Papers 1505, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.
    17. James Risk & Michael Ludkovski, 2015. "Statistical Emulators for Pricing and Hedging Longevity Risk Products," Papers 1508.00310, arXiv.org, revised Sep 2015.

    More about this item

    Keywords

    Longevity Risk; securitization; risk transfer; incomplete market; life insurance; stochastic mortality; pensions; long term interest rate; regulation; population dynamics;

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    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:hal:journl:hal-00417800. 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: (CCSD). General contact details of provider: https://hal.archives-ouvertes.fr/ .

    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.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with 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.