Zeddouk, Fadoua
[UCL]
Longevity risk is a fundamental concern for the industry of life insurance. The huge increase in life expectancy has pushed reinsurers and the financial markets to propose longevity derivatives that allow insurers to transfer their longevity risk. In this thesis, we have addressed different aspects of this risk, such as the modelling and pricing issues, from various angles. The first chapter consists in comparing between mean and non-mean reversion models. Five models have been considered, including non-mean reversion models (Ornstein-Uhlenbeck and Feller), a mean reversion model with a fixed target (Vasiçek), and mean reversion processes with a time-dependent level (Hull and White and CIR extended). We show that the mean reverting models with a time-dependent target outperform the other models. In the second chapter of the thesis we discuss the pricing challenges for longevity derivatives, and we propose a pricing approach consistent with Solvency II. This pricing method is compared with important classical pricing approaches used in finance (risk-neutral, Sharpe ratio and Wang). We show the non-perfect consistency of these traditional methods with respect to the Cost of Capital approach. The payoffs of these derivatives are based on the national population data rather than the insurer's own data, which may lead to a mismatch called the basis risk. This has motivated the third chapter, where we measure this risk by linking it to another longevity derivative, the S-exchange contract, whose price corresponds to the hedging cost of this risk. We use three multi-population models based on the Hull and White process for mortality, and propose different longevity hedging strategies depending on the insurer's risk aversion. Finally, in the last chapter this framework is extended for a multi-cohort portfolio with correlated mortalities. We assess the longevity risk related to this portfolio through the pricing of a new derivative, the GS-forward contract, under the Cost of Capital and the classical pricing methods.
![](https://dial.uclouvain.be/pr/boreal/sites/all/modules/dial/dial_user/dial_user_list/images/shopping-basket-gray--plus.png)
![](https://dial.uclouvain.be/pr/boreal/sites/all/modules/dial/dial_widget/dial_widget_pr/images/icons/printer.png)
Bibliographic reference |
Zeddouk, Fadoua. Hedging and pricing longevity risks : actuarial challenges and securitization solutions. Prom. : Devolder, Pierre |
Permanent URL |
http://hdl.handle.net/2078.1/240961 |