Haircut or hedge-trim?

(Jul 4, 2013)

Richard Willet's observation last year on the restatement of population estimates was picked up again recently by the BBC.  Amongst the implications of the missing nonagenarians are some potentially interesting consequences for index-based longevity hedges. These are derivative contracts based on population mortality data. The idea is that an organisation holding longevity risk, such as an insurer or pension fund, would buy or sell an appropriate instrument to transfer risk to an investor willing to take it. The portfolio being hedged will not have the same mortality dynamics as the population - so-called basis risk - but the idea is that the hedge will provide at least partial protection.

Imagine…

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Tags: ONS, longevity hedge, basis risk, S-forward

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