Dowd, K. and Cairns, A.J.G. and Blake, D. (2019) 'Hedging annuity risks with the age-period-cohort two-population gravity model.', The North American actuarial journal. .
We consider the effectiveness of an illustrative annuity hedging problem in which a forward annuity predicated on one population is hedged by a position in a forward annuity predicated on another population. Our analysis makes use of the age-period-cohort two-population gravity model that takes account of the observed interdependence between the two populations’ mortality rates; it also considers the implications of parameter uncertainty, individual death or Poisson risk, and interest-rate risk for hedge effectiveness. We consider horizons of up to 20 years. For the most part, our results are robust and indicate strong hedge effectiveness, with estimates of relative risk reduction varying from about 70% in the least effective case to well over 95% in the most effective cases.
|Full text:||(AM) Accepted Manuscript|
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|Publisher Web site:||https://doi.org/10.1080/10920277.2019.1652102|
|Publisher statement:||This is an Accepted Manuscript of an article published by Taylor & Francis in The North American actuarial journal on 20 November 2019 available online: http://www.tandfonline.com/10.1080/10920277.2019.1652102|
|Date accepted:||30 July 2018|
|Date deposited:||03 January 2018|
|Date of first online publication:||20 November 2019|
|Date first made open access:||No date available|
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