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Longevity Bonds: Financial Engineering, Valuation, and Hedging
Author(s) -
Blake David,
Cairns Andrew,
Dowd Kevin,
MacMinn Richard
Publication year - 2006
Publication title -
journal of risk and insurance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.055
H-Index - 63
eISSN - 1539-6975
pISSN - 0022-4367
DOI - 10.1111/j.1539-6975.2006.00193.x
Subject(s) - longevity , valuation (finance) , longevity risk , bond , actuarial science , population , context (archaeology) , business , economics , finance , geography , demography , sociology , genetics , archaeology , biology
This article examines the main characteristics of longevity bonds (LBs) and shows that they can take a large variety of forms which can vary enormously in their sensitivities to longevity shocks. We examine different ways of financially engineering LBs and consider problems arising from the dearth of ultra‐long government bonds and the choice of the reference population index. The article also looks at valuation issues in an incomplete markets context and finishes with an examination of how LBs can be used as a risk management tool for hedging longevity risks.