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

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.

This is an Accepted Manuscript of an article published by Taylor & Francis in North American Actuarial Journal on 2019-11-22, available online: https://www.tandfonline.com/10.1080/10920277.2019.1650286.

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Work Title Hedging Longevity Risk: Does the Structure of the Financial Instrument Matter?
Access
Open Access
Creators
  1. Richard D. MacMinn
  2. Nan Zhu
Keyword
  1. Longevity risk
  2. Longevity hedging
  3. Cash-flow hedging
  4. Value hedging
  5. Shareholder value
License CC BY-NC 4.0 (Attribution-NonCommercial)
Work Type Article
Publisher
  1. North American Actuarial Journal
Publication Date November 22, 2019
Publisher Identifier (DOI)
  1. https://doi.org/10.1080/10920277.2019.1650286
Deposited December 18, 2023

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Version 1
published

  • Created
  • Added cash_flow_versus_value_longevity_hedging-1.pdf
  • Added Creator Richard D. MacMinn
  • Added Creator Nan Zhu
  • Published
  • Updated Keyword Show Changes
    Keyword
    • Longevity risk, Longevity hedging, Cash-flow hedging, Value hedging, Shareholder value
  • Updated