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- Title
A Multivariate Model of Strategic Asset Allocation with Longevity Risk.
- Authors
Bisetti, Emilio; Favero, Carlo A.; Nocera, Giacomo; Tebaldi, Claudio
- Abstract
Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standard Campbell–Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by U.S. insurance companies, shows that aggregate shocks to survival probabilities are predictors for long-term returns of the longevity-linked securities, and reveals an unexpected predictability pattern. Valuation of longevity risk premium confirms that longevity-linked securities offer inexpensive funding opportunities to asset managers.
- Subjects
ASSET allocation; LONGEVITY; ANNUITIES; LIFE expectancy; RISK -- Mathematical models; RISK assessment -- Mathematical models; MATHEMATICAL models
- Publication
Journal of Financial & Quantitative Analysis, 2017, Vol 52, Issue 5, p2251
- ISSN
0022-1090
- Publication type
Article
- DOI
10.1017/S0022109017000692