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A Multivariate Model of Strategic Asset Allocation with Longevity Risk

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.
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https://hal-audencia.archives-ouvertes.fr/hal-01633544
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Submitted on : Monday, November 13, 2017 - 10:36:49 AM
Last modification on : Thursday, September 3, 2020 - 4:24:41 PM
Long-term archiving on: : Wednesday, February 14, 2018 - 12:57:28 PM

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Emilio Bisetti, Carlo A. Favero, Giacomo Nocera, Claudio Tebaldi. A Multivariate Model of Strategic Asset Allocation with Longevity Risk. Journal of Financial and Quantitative Analysis, Cambridge University Press (CUP), 2017, 52 (05), pp.2251 - 2275. ⟨10.1017/S0022109017000692⟩. ⟨hal-01633544⟩

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