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RISK‐MINIMIZATION FOR LIFE INSURANCE LIABILITIES WITH DEPENDENT MORTALITY RISK
Author(s) -
Biagini Francesca,
Botero Camila,
Schreiber Irene
Publication year - 2017
Publication title -
mathematical finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.98
H-Index - 81
eISSN - 1467-9965
pISSN - 0960-1627
DOI - 10.1111/mafi.12095
Subject(s) - life insurance , portfolio , actuarial science , longevity risk , econometrics , economics , asset (computer security) , replicating portfolio , portfolio optimization , financial economics , computer science , pension , finance , computer security
In this paper, we study the pricing and hedging of typical life insurance liabilities for an insurance portfolio with dependent mortality risk by means of the well‐known risk‐minimization approach. As the insurance portfolio consists of individuals of different age cohorts in order to capture the cross‐generational dependency structure of the portfolio, we introduce affine models for the mortality intensities based on Gaussian random fields that deliver analytically tractable results. We also provide specific examples consistent with historical mortality data and correlation structures. Main novelties of this work are the explicit computations of risk‐minimizing strategies for life insurance liabilities written on an insurance portfolio composed of primary financial assets (a risky asset and a money market account) and a family of longevity bonds, and the simultaneous consideration of different age cohorts.