Basis Risk and Pensions Schemes: A Relative Modelling Approach.

65 Pages Posted: 24 Jun 2020

See all articles by Andrew Hunt

Andrew Hunt

City University London - Sir John Cass Business School

David P. Blake

City, University of London

Date Written: January 1, 2016

Abstract

For many pension schemes, a shortage of data limits their ability to use sophisticated stochastic mortality models to assess and manage their longevity risk. In this study, we develop a relative model for mortality, which compares the evolution of mortality rates in a sub-population with that observed in a larger reference population. We apply this relative approach to data from the CMI Self-Administered Pension Scheme study, using UK population data as a reference. We then use the relative approach to investigate the potential differences in the evolution of mortality rates between these two populations and find that, in many practical situations, basis risk is much less of a problem than is commonly believed.

Keywords: Mortality modelling, age/period/cohort models, relative models, longevity basis risk

JEL Classification: C33, C51, C52, G22, J26

Suggested Citation

Hunt, Andrew and Blake, David P., Basis Risk and Pensions Schemes: A Relative Modelling Approach. (January 1, 2016). Available at SSRN: https://ssrn.com/abstract=3614048 or http://dx.doi.org/10.2139/ssrn.3614048

Andrew Hunt

City University London - Sir John Cass Business School ( email )

106 Bunhill Row
London, EC1Y 8TZ
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)

HOME PAGE: http://www.pensions-institute.org/

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