Next Article in Journal
State Space Models and the Kalman-Filter in Stochastic Claims Reserving: Forecasting, Filtering and Smoothing
Previous Article in Journal
Asymptotic Estimates for the One-Year Ruin Probability under Risky Investments
Article Menu

Export Article

Open AccessArticle
Risks 2017, 5(2), 29; doi:10.3390/risks5020029

Maximum Market Price of Longevity Risk under Solvency Regimes: The Case of Solvency II

1
Department of Statistics, Sapienza University of Rome, Viale Regina Elena, 295/G, 00161 Rome, Italy
2
Department of Economics, Statistics and Finance, University of Calabria, Via P. Bucci, 87036 Rende (CS), Italy
These authors contributed equally to this work.
*
Author to whom correspondence should be addressed.
Academic Editor: Mogens Steffensen
Received: 25 February 2017 / Revised: 30 April 2017 / Accepted: 4 May 2017 / Published: 10 May 2017
View Full-Text   |   Download PDF [2239 KB, uploaded 10 May 2017]   |  

Abstract

Longevity risk constitutes an important risk factor for life insurance companies, and it can be managed through longevity-linked securities. The market of longevity-linked securities is at present far from being complete and does not allow finding a unique pricing measure. We propose a method to estimate the maximum market price of longevity risk depending on the risk margin implicit within the calculation of the technical provisions as defined by Solvency II. The maximum price of longevity risk is determined for a survivor forward (S-forward), an agreement between two counterparties to exchange at maturity a fixed survival-dependent payment for a payment depending on the realized survival of a given cohort of individuals. The maximum prices determined for the S-forwards can be used to price other longevity-linked securities, such as q-forwards. The Cairns–Blake–Dowd model is used to represent the evolution of mortality over time that combined with the information on the risk margin, enables us to calculate upper limits for the risk-adjusted survival probabilities, the market price of longevity risk and the S-forward prices. Numerical results can be extended for the pricing of other longevity-linked securities. View Full-Text
Keywords: longevity risk; S-forwards; pricing; risk margin; Solvency II longevity risk; S-forwards; pricing; risk margin; Solvency II
Figures

Figure 1

This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited. (CC BY 4.0).

Scifeed alert for new publications

Never miss any articles matching your research from any publisher
  • Get alerts for new papers matching your research
  • Find out the new papers from selected authors
  • Updated daily for 49'000+ journals and 6000+ publishers
  • Define your Scifeed now

SciFeed Share & Cite This Article

MDPI and ACS Style

Levantesi, S.; Menzietti, M. Maximum Market Price of Longevity Risk under Solvency Regimes: The Case of Solvency II. Risks 2017, 5, 29.

Show more citation formats Show less citations formats

Note that from the first issue of 2016, MDPI journals use article numbers instead of page numbers. See further details here.

Related Articles

Article Metrics

Article Access Statistics

1

Comments

[Return to top]
Risks EISSN 2227-9091 Published by MDPI AG, Basel, Switzerland RSS E-Mail Table of Contents Alert
Back to Top