Assessing Longevity Risk in a Portfolio of Life Annuities

25 Pages Posted: 5 Sep 2016 Last revised: 28 Sep 2016

See all articles by Ermanno Pitacco

Ermanno Pitacco

University of Trieste - Dipartimento di Scienze Economiche, Aziendali, Matematiche e Statistiche B. de Finetti

Edit Rroji

Department of Statistics and Quantitative Methods University of Milano-Bicocca

Date Written: September 27, 2016

Abstract

In this paper we focus on longevity risk when mortality laws are used for the patterns of death description in a population. The notion of longevity risk is strictly linked to parameter uncertainty that suggests the estimation output should be an interval instead of a single value for each parameter. To this aim we first create bootstrapped samples and then, for each cohort in a sample, estimate model parameters. The dynamics of each parameter is then modeled with an autoregressive process. Finally, we simulate future scenarios for yearly probabilities of death and use them in life annuity portfolio pricing.

Keywords: Longevity; Bootstrap; Life annuity; Mortality law

Suggested Citation

Pitacco, Ermanno and Rroji, Edit, Assessing Longevity Risk in a Portfolio of Life Annuities (September 27, 2016). Available at SSRN: https://ssrn.com/abstract=2834264 or http://dx.doi.org/10.2139/ssrn.2834264

Ermanno Pitacco

University of Trieste - Dipartimento di Scienze Economiche, Aziendali, Matematiche e Statistiche B. de Finetti

Piazzale Europa 1
Trieste, Trieste 34100
Italy

Edit Rroji (Contact Author)

Department of Statistics and Quantitative Methods University of Milano-Bicocca ( email )

Piazza dell’Ateneo Nuovo 1, 20126 Milano
Milano, 20126
Italy

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