Over the last half-century, around the world, many nations have seen plummeting fertility rates and mounting life expectancies. These two factors are the engine behind unprecedented global aging. In this paper, we explore how the demographic transition may influence financial markets and, in...

In this article, we consider the links between solvency, capital allocation, and fair rate of return in insurance. A method to allocate capital in insurance to lines of business is developed based on an economic definition of solvency and the market value of the insurer balance sheet. Solvency,...

This paper considers the pricing of contingent claims using an approach developed and used in insurance pricing. The approach is of interest and significance because of the increased integration of insurance and financial markets and also because insurance-related risks are trading in financial...

This paper proposes and calibrates a consistent multi-factor affine term structure mortality model for longevity risk applications. We show that this model is appropriate for fitting historical mortality rates. Without traded mortality instruments the choice of risk-neutral measure is not unique...

Heterogeneity in mortality rates is known to exist in populations, undermining the use of age and sex as the only rating factors for life insurance and annuity products. Life insurers offering life annuities assume that annuitant lives will self-select, and price the longevity risk with an...

This paper analyzes an individual’s post-retirement longevity risk management strategy allowing for systematic longevity risk, recent product innovations, and product loadings. A complete-markets discrete state model and multi-period simulations of portfolio strategies are used to assess...

This paper considers the pricing of European call options written on pure endowment and deferred life annuity contracts, also known as guaranteed annuity options. These contracts provide a guaranteed value at the maturity of the option. The contract valuation is dependent on the stochastic...

Systematic improvements in mortality increases dependence in the survival distributions of insured lives, which is not accounted for in standard life tables and actuarial models used for annuity pricing and reserving. Systematic longevity risk also undermines the law of large numbers, a law that...