A Multivariate Model of Strategic Asset Allocation with Longevity Risk
Résumé
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.
Domaines
Gestion et management
Fichier principal
Nocera & al. JFQA 2017.pdf (388.45 Ko)
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Nocera & al., appendices, JFQA 2017.pdf (357.43 Ko)
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