Living with Mortality: Longevity Bonds and Other Mortality-Linked Securities

By David P. Blake, Andrew J. G. Cairns, Kevin Dowd. 2006

297 citations recorded by the source corpus.

This paper addresses the problem of longevity risk — the risk of uncertain aggregate mortality — and discusses the ways in which life assurers, annuity providers and pension plans can manage their exposure to this risk. In particular, it focuses on how they can use mortality-linked securities and over-the-counter contracts — some existing and others still hypothetical — to manage their longevity risk exposures. It provides a detailed analysis of two such securities — the Swiss Re mortality bond issued in December 2003 and the EIB/BNP longevity bond announced in November 2004. It then looks at the universe of hypothetical mortality-linked securities — other forms of longevity bonds, swaps, futures and options — and investigates their potential uses. It also addresses implementation issues, and draws lessons from the experiences of other derivative contracts. Particular attention is paid to the issues involved with the construction and use of mortality indices, the management of the associated credit risks, and possible barriers to the development of markets for these securities. It suggests that these implementation difficulties are essentially teething problems that will be resolved over time, and so leave the way open to the development of flourishing markets in a brand new class of securities.

Subfields: Demography, Economics and Econometrics, General Health Professions

View Paper: https://www.semanticscholar.org/paper/a618d331e664cf2ac1be1ef962b04bfa8ca07f6a

How researchers see this paper

The researchers whose trusted networks rank it highest, strongest advocate first. Every researcher gets a different order.

In Demography

In Economics and Econometrics

In General Health Professions

Citations in the corpus

Modelling and management of longevity risk: Approximations to survivor functions and dynamic hedging (2011, methodology): “The Deltas require the calculation of the partial derivatives of qF (0, t, x; k) with respect to k1 and k2 the components of k = (k1, k2).”
Longevity risk management for life and variable annuities: The effectiveness of static hedging using longevity bonds and derivatives (2011, background): “Blake et al (2006) [10] and Dowd et al (2006) [20] discuss longevity bonds and survivor swaps respectively, including construction and use in hedging longevity risk.”
Pricing Standardized Mortality Securitizations: A Two‐Population Model with Transitory Jump Effects (2013, unknown): “For the mortality bond (Vita I) issued by Swiss Re in 2003, the values of a and b were set to 1.3 and 1.5, respectively (see Blake et al., 2006).”
On the pricing of longevity-linked securities (2010, background): “Dowd et al. (2006)) have been proposed (see Blake et al. (2006a) for an overview).”
Longevity Bonds: Financial Engineering, Valuation, and Hedging (2006, unknown): “5 Evidence of this skepticism was seen in the reaction of many in the audience when a recent paper (Blake, Cairns, and Dowd, 2006) was presented to meetings of the Faculty of Actuaries in Edinburgh and the Institute of Actuaries in London in January and February 2006, respectively.”
Pricing Death: Frameworks for the Valuation and Securitization of Mortality Risk* (2006, unknown): “For more detail, see Section 2.1.”
The New Life Market (2013, unknown): “Blake et al. (2006b) examined the reasons why some futures contracts succeed and why others fail.”
Longevity Bond Premiums: The Extreme Value Approach and Risk Cubic Pricing (2010, unknown): “Third, the EIB bond design exposed the hedger to the direct credit risk of the EIB and the indirect credit risk of BNP Paribas and Partner 7 Further details are provided in Blake et al. (2006a).”
Optimal investment-consumption-insurance with random parameters (2016, background): “These mortality-linked securities include longevity bonds and survivor swaps (Blake et al. 2006).”
A Two-Factor Model for Stochastic Mortality With Parameter Uncertainty: Theory and Calibration (2006, unknown): “4 Although this issue was ultimately unsuccessful, there are important issues to be learned about how to price such contracts (an issue which we discuss at length in this article) and about design issues (which are discussed elsewhere: see, for example, Blake, Cairns, and Dowd, 2006).”