We propose an optimization approach to allocating economic capital, distinguishing between an allocation principle and a measure for the risk residual...

This paper analyzes an individual’s post-retirement longevity risk management strategy allowing for systematic longevity risk, recent product innovations, and product loadings. A complete-markets discrete state model and multi-period simulations of portfolio strategies are used to assess...

This paper proposes a unified framework for measuring and managing longevity risk. Specifically, we develop a flexible framework for valuing survivor derivatives like forwards, and swaps, as well as options both of European and American style. Our framework is essentially independent of the...

We analyze a pooled annuity fund from a participant’s perspective by comparing it to a mortality-linked fund, a type of variable payout life annuity, that gives a return linked to the force of mortality but subject to a cost. Fixing the instantaneous volatility of return on wealth, we find...

In actuarial risk theory, the introduction of dividend pay-outs in surplus models goes back to de Finetti (1957). Dividend strategies that can be found in the literature often yield pay-out patterns that are inconsistent with actual practice. One issue is the high variability of the dividend...

Heterogeneity in mortality rates is known to exist in populations, undermining the use of age and sex as the only rating factors for life insurance and annuity products. Life insurers offering life annuities assume that annuitant lives will self-select, and price the longevity risk with an...

Even though insurers predominantly invest in bonds, credit risk associated with government and corporate bonds has long not been a focus in their risk management. After the crisis of several European countries, however, credit risk has recently been paid greater attention. Nevertheless, the...

The quantification of diversification benefits due to risk aggregation has received more attention in the recent literature. In this paper, we establish second-order expansions of the risk concentration based on the risk measure of conditional tail expectation for a portfolio of n independent...

This paper investigates the optimal dividend problem of an insurance company, which controls risk exposure by reinsurance and by issuing new equity to protect from bankruptcy. Transaction costs are incurred by these business activities: reinsurance is non-cheap, dividend is taxed and fixed costs...

Standard annuities are offered at one price to all individuals of the same age and gender. Individual mortality heterogeneity exposes insurers to adverse selection since only relatively healthy lives are expected to purchase annuities. As a result standard annuities are priced assuming...