Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate it. This paper extends the standard Campbell and Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by United States 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.

A multivariate model of strategic asset allocation with longevity risk

Bisetti, Emilio;Favero, Carlo A.
;
Nocera, Giacomo;Tebaldi,Claudio
2017

Abstract

Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate it. This paper extends the standard Campbell and Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by United States 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.
2017
2017
Bisetti, Emilio; Favero, Carlo A.; Nocera, Giacomo; Tebaldi, Claudio
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11565/3984436
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