An efficient method for mitigating longevity value-at-risk. (English) Zbl 1465.91097

Given the centrality of the s-year value-at-risk in the context of Solvency capital requirements, the paper provides a method to formulate a value hedge in order to minimize the value-at-risk of the hedged position over a horizon of s years. In particular, this study concerns a hedging strategy involving stochastic mortality models that can be expressed in a state-space form. After presenting the general state-space form of stochastic mortality models, the study focuses in details on the liability being hedged and the hedging instruments, just within a stochastic scenario where the mortality model is expressed in a state-space form. Then, the hedging strategy is in-depth and illustrated by means of three example models that are commonly used in practice. Moreover, the evaluation of the longevity hedge is provided, underlining the progress achieved throughout the simulative methodologies proposed in the paper. Real-data illustrations show the practical application of the results obtained.


91G05 Actuarial mathematics
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