Longevity Risk

Dear Colleagues,

In the report, “World Population Ageing: 1950–2050”, the United Nations asserted that population aging is characterized by three phenomena:

• it is unprecedented, without parallel in human history—and the twenty-first century will witness even more rapid aging;
• it is pervasive, a global phenomenon affecting every human being even if countries are at very different stages of the process;
• it is enduring: We will not return to the young populations that our ancestors knew.

Mortality risk can be suitably managed by insurance companies through the law of large numbers (i.e., by widening the number of policy holders). Unfortunately, the same law makes the longevity risk heavier.

Population aging affects economics at two levels:

• individual level: An economic agent who optimally decides how much of his/her wealth/wage to consume over his lifetime, must definitely take into account both the mortality risk and the longevity risk; the latter implies that agents will have to finance their consumption for longer and longer periods of time;
• social level: Any institutional investor involved in actuarial markets (like insurance companies, and pension funds) face the longevity risk because they will have to provide policy holders with pensions/annuities for longer periods of time. The same is valid for some public pension systems (Pay-As-You-Go).

On the financial market, there are few derivatives written on the longevity risk. The recent attempts to issue some “longevity bonds” have led to the development of a market for actuarial assets, which is nevertheless still highly illiquid.

Manuscripts are invited on topics that include one or more of the following topics:

• optimal portfolio allocation with actuarial assets which may hedge the longevity risk in the long term (for the whole life cycle)
• asset allocation in incomplete financial markets where the longevity risk can be only partially hedged
• longevity risk management on financial markets where catastrophic events (like 2007/2008 crisis) may happen
• optimal investment in annuities
• optimal investment in the third pillar pension schemes
• financing of long term care expenditures
• pension scheme sustainability with ageing population
• forecasting model for future mortality and longevity

Prof. Francesco Menoncin
Guest Editor

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• longevity risk
• mortality risk
• actuarial assets
• ageing
• long term care
• pensions
• annuities