Hedging Longevity Risk: Does the Structure of the Financial Instrument Matter?

Richard D. MacMinn, Nan Zhu

Research output: Contribution to journalArticle

Abstract

Longevity-linked securities can be constructed either as cash flow hedging instruments or as value hedging instruments. This article studies the interaction between the structure of longevity-linked securities and shareholder value. Relying on a strand of literature that investigates corporate risk management decisions made in the interests of shareholders, we present a framework that compares cash flow hedges with value hedges. Both our theoretical model and numerical experiments show that value hedging dominates cash flow hedging in the context of management decisions being made to maximize shareholder value. This finding provides an explanation for the failure of some attempted issues of longevity risk transfer instruments and suggests efficient alternate structures.

Original languageEnglish (US)
JournalNorth American Actuarial Journal
DOIs
StateAccepted/In press - Jan 1 2019

Fingerprint

Hedging
Risk Management
Alternate
Theoretical Model
Maximise
Numerical Experiment
Longevity risk
Financial instruments
Interaction
Cash flow
Shareholder value
Management decisions
Hedge

All Science Journal Classification (ASJC) codes

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

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Hedging Longevity Risk : Does the Structure of the Financial Instrument Matter? / MacMinn, Richard D.; Zhu, Nan.

In: North American Actuarial Journal, 01.01.2019.

Research output: Contribution to journalArticle

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