Mortality Portfolio Risk Management

Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 853-890, 2013

41 Pages Posted: 25 Aug 2011 Last revised: 19 Feb 2015

See all articles by Samuel H. Cox

Samuel H. Cox

University of Manitoba - Asper School of Business

Yijia Lin

University of Nebraska at Lincoln - Department of Finance

Ruilin Tian

North Dakota State University - Department of Accounting, Finance, and Information Systems

Luis Zuluaga

University of New Brunswick - Fredericton

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Date Written: August 21, 2011

Abstract

We provide a new method, the “MV CVaR approach”, for managing unexpected mortality changes underlying annuities and life insurance. The MV CVaR approach optimizes the mean-variance tradeoff of an insurer’s mortality portfolio, subject to constraints on downside risk. We apply the method of moments and the maximum entropy method to analyze the efficiency of MV CVaR mortality portfolios relative to traditional Markowitz mean-variance portfolios. Our numerical examples illustrate the superiority of the MV CVaR approach in mortality risk management and shed new light on natural hedging effects of annuities and life insurance.

Keywords: mortality risk, portfolio theory, conditional value-at-risk, moments method, downside risk

Suggested Citation

Cox, Samuel H. and Lin, Yijia and Tian, Ruilin and Zuluaga, Luis, Mortality Portfolio Risk Management (August 21, 2011). Journal of Risk and Insurance, Vol. 80, Issue 4, pp. 853-890, 2013. Available at SSRN: https://ssrn.com/abstract=1916330

Samuel H. Cox

University of Manitoba - Asper School of Business ( email )

181 Freedman Crescent
Winnipeg, Manitoba R3T 5V4
Canada

Yijia Lin (Contact Author)

University of Nebraska at Lincoln - Department of Finance ( email )

Lincoln, NE 68588-0490
United States

Ruilin Tian

North Dakota State University - Department of Accounting, Finance, and Information Systems ( email )

Fargo, ND
United States
7012316544 (Phone)
7012316545 (Fax)

Luis Zuluaga

University of New Brunswick - Fredericton ( email )

Bailey Drive
P.O. Box 4400
Fredericton NB E3B 5A3, New Brunswick E3B 5A3
Canada

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