Mortality-Linked Securities and Derivatives

20 Pages Posted: 11 Feb 2009 Last revised: 24 Jun 2020

See all articles by Enrico Biffis

Enrico Biffis

Imperial College Business School

David P. Blake

City, University of London

Date Written: October 7, 2009


In the last few years, the risk of mortality improvements has become increasingly capital intensive for pension funds and annuity providers to manage. The reason is that longevity risk has been systematically underestimated, making balance sheets vulnerable to unexpected increases in liabilities. The traditional way of transferring longevity risk is through insurance and reinsurance markets. However, these lack the capacity and liquidity to support an estimated global exposure in excess of $20tr (e.g., Loeys et al., 2007). Capital markets, on the other hand, could play a very important role, offering additional capacity and liquidity to the market, leading in turn to more transparent and competitive pricing of longevity risk.

Blake and Burrows (2001) were the first to advocate the use of mortality-linked securities to transfer longevity risk to the capital markets. Their proposal has generated considerable attention in the last few years, and major investment banks and reinsurers are now actively innovating in this space (see Blake et al., 2008, for an overview). Nevertheless, despite growing enthusiasm, longevity risk transfers have been materializing only slowly. One of the reasons is the huge imbalance in scale between existing exposures and willing hedge suppliers. Another reason is that a traded mortality-linked security has to meet the different needs of hedgers (concerned with hedge effectiveness) and investors (concerned with liquidity and with receiving adequate compensation for assuming the risk), needs that are difficult to reconcile when longevity risk, a long-term trend risk that is difficult to quantify, is involved. A third reason is the absence of an established market price for longevity risk. We provide an overview of the recent developments in capital markets aimed at overcoming such difficulties and at creating a liquid market in mortality-linked securities and derivatives.

Suggested Citation

Biffis, Enrico and Blake, David P., Mortality-Linked Securities and Derivatives (October 7, 2009). Available at SSRN: or

Enrico Biffis

Imperial College Business School ( email )

Imperial College London
South Kensington campus
London, SW7 2AZ
United Kingdom

David P. Blake (Contact Author)

City, University of London ( email )

106 Bunhill Row
London, EC1Y 8TZX
Great Britain
+44 (0) 20-7040-8600 (Phone)
+44 (0) 20-7040-8881 (Fax)


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