A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Emilio Bisetti; Carlo A. Favero; Giacomo Nocera; Claudio Tebaldi

doi:10.1017/S0022109017000692

A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Emilio Bisetti Carlo A. Favero Giacomo Nocera ¹ Claudio Tebaldi

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.

Type de document :

Article dans une revue

Journal of Financial and Quantitative Analysis, Cambridge University Press (CUP), 2017, 52 (05), pp.2251 - 2275. 〈10.1017/S0022109017000692〉

Domaine :

Sciences de l'Homme et Société / Gestion et management

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A Multivariate Model of Strategic Asset Allocation with Longevity Risk

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A Multivariate Model of Strategic Asset Allocation with Longevity Risk

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