Lee-Carter goes risk-neutral: an application to the Italian annuity market

We consider a class of stochastic intensities of mortality that generalizes the model proposed by Lee and Carter (1992), allowing general diffusions to drive the mortality time-trend. We analyze the stability of such class of intensities under measure changes and show how a risk-neutral version of the generalized Lee-Carter model can be employed for fair valuation purposes. We provide an example of model calibration based on the Italian annuity market

Optimal Insurance with Counterparty Default Risk

We study the design of optimal insurance contracts when the insurer can default on its obligations. In our model default arises endogenously from the interaction of the insurance premium, the indemnity schedule and the insurer's assets. This allows us to understand the joint effect of insolvency risk and background risk on optimal contracts. The results may shed light on the aggregate risk retention schedules observed in catastrophe reinsurance markets, and can assist in the design of (re)insurance programs and guarantee funds

Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers

The recent activity in pension buyouts and bespoke longevity swaps suggests that a significant process of aggregation of longevity exposures is under way, led by major insurers, investment banks, and buyout firms with the support of leading reinsurers. As regulatory capital charges and limited reinsurance capacity constrain the scope for market growth, there is now an opportunity for institutions that are pooling longevity exposures to issue securities that appeal to capital market investors, thereby broadening the sharing of longevity risk and increasing market capacity. For this to happen, longevity exposures need to be suitably pooled and tranched to maximize diversification benefits offered to investors and to address asymmetric information issues. We argue that a natural way for longevity risk to be transferred is through suitably designed principal-at-risk bonds

The cross-section of Asia-Pacific mortality dynamics: Implications for longevity risk sharing

We study the dynamics of longevity risk across a subset of cou ntries in the Asia-Pacific (APAC) region. We use hand-collected and existing data on age-spec ific mortality rates from emerging and developed economies, to understand how secular changes in mortality vary within and across APAC countries. We use our results to identify cross-hedging opportunities among longevity risk exposures in the APAC region. We also introduce k -forward contracts, which offer natural risk sharing opportunities to hedgers in different countries. We consider the example of Korea and Japan as a case stud

“We got cancer”- A mixed methods study of quality of life and psychological distress in head and neck cancer patients and their families

Background: A diagnosis of cancer and its subsequent treatment can have a profound impact on the quality of a person’s life, as well as on the lives of their partners and family members. While the role of families as a source of support is generally recognised, very little is known about the effect that a partners’ or family members’ distress levels may have on Head and Neck Cancer (HNC) patients’ quality of life (QoL). Aims: The aims of this thesis were; 1) to measure the levels of psychological distress of HNC patients and their partners and other family members; 2) explore the relationship between partner/family member psychological distress and patient QOL 3) to gain deeper understanding of the lived experiences of HNC couples, with specific focus on patients who had a partner with psychological distress before treatment. Method: This mixed methods longitudinal study recruited 90 newly diagnosed HNC patients and 74 caregivers (partners n=50, family members n=24) which were followed over a period of 6-12 months. They completed the hospital and anxiety scale (HADS) and the WHO Quality of Life-BREF (WHOQOL-BREF) questionnaires before treatment and at 6 months following diagnosis. The qualitative phase of the study was completed 12 months following diagnosis, where a subsample of three HNC couples were purposively selected and interviewed about their experiences of HNC. Results: There were three key findings within the present study. Firstly, psychological distress in caregivers, particularly partners was higher than in HNC patients. Secondly, HNC patients who had a caregiver with psychological distress showed lower QoL and finally, the qualitative study showed the negative impact of HNC on the patient-partner relationship. Conclusions: What this study has shown is the importance of the caregiver’s role in HNC, and how their psychological functioning has an effect on the patient’s functioning. If partners or family members are to become active agents of help for the patient, it is proposed they should first be prepared psychologically for the task

A pricing formula for delayed claims: appreciating the past to value the future

We consider the valuation of contingent claims with delayed dynamics in a Samuelson complete market model. We find a pricing formula that can be decomposed into terms reflecting the current market values of the past and the future, showing how the valuation of prospective cashflows cannot abstract away from the contribution of the past. As a practical application, we provide an explicit expression for the market value of human capital in a setting with wage rigidity. The formula we derive has successfully been used to explicitly solve the infinite dimensional stochastic control problems addressed in [7], [6] and [16]

Keeping Some Skin in the Game: How to Start a Capital Market in Longevity Risk Transfers

The recent activity in pension buyouts and bespoke longevity swaps suggests that a significant process of aggregation of longevity exposures is under way, led by major insurers, investment banks, and buyout firms with the support of leading reinsurers. As regulatory capital charges and limited reinsurance capacity constrain the scope for market growth, there is now an opportunity for institutions that are pooling longevity exposures to issue securities that appeal to capital market investors, thereby broadening the sharing of longevity risk and increasing market capacity. For this to happen, longevity exposures need to be suitably pooled and tranched to maximize diversification benefits offered to investors and to address asymmetric information issues. We argue that a natural way for longevity risk to be transferred is through suitably designed principal-at-risk bonds

A pricing formula for delayed claims: appreciating the past to value the future

We consider the valuation of contingent claims with delayed dynamics in a Samuelson complete market model. We find a pricing formula that can be decomposed into terms reflecting the current market values of the past and the future, showing how the valuation of prospective cashflows cannot abstract away from the contribution of the past. As a practical application, we provide an explicit expression for the market value of human capital in a setting with wage rigidity. The formula we derive has successfully been used to explicitly solve the infinite dimensional stochastic control problems addressed in Biffis et al. (SIAM J Control Optim 58(4):1906–1938, 2020), Djeiche et al. (Stoch Process Appl 145:48–85, 2022) and Biagini et al. (SIAM J Financial Math 13(3):1004–1039, 2022)

The impact of longevity and investment risk on a portfolio of life insurance liabilities

In this paper we assess the joint impact of biometric and financial risk on the market valuation of life insurance liabilities. We consider a stylized, contingent claim based model of a life insurance company issuing participating contracts and subject to default risk, as pioneered by Briys and de Varenne (Geneva Pap Risk Insur Theory 19(1):53–72, 1994, J Risk Insur 64(4):673–694, 1997), and build on their model by explicitly introducing biometric risk and its components, namely diversifiable and systematic risk. The contracts considered include pure endowments, deferred whole life annuities and guaranteed annuity options. Our results stress the predominance of systematic over diversifiable risk in determining fair participation rates. We investigate the interaction of contract design, market regimes and mortality assumptions, and show that, particularly for lifelong benefits, the choice of the participation rate must be very conservative if longevity improvements are foreseeable