A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Emilio Bisetti; Carlo A. Favero; Giacomo Nocera; Claudio Tebaldi

doi:10.1017/S0022109017000692

A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Emilio Bisetti, Carlo A. Favero^*, Giacomo Nocera, Claudio Tebaldi

^*Corresponding author for this work

Research output: Contribution to journal › Journal Article › peer-review

6 Citations (Scopus)

Abstract

Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standard Campbell-Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by U.S. insurance companies, shows that aggregate shocks to survival probabilities are predictors for long-term returns of the longevity-linked securities, and reveals an unexpected predictability pattern. Valuation of longevity risk premium confirms that longevity-linked securities offer inexpensive funding opportunities to asset managers.

Original language	English
Pages (from-to)	2251-2275
Number of pages	25
Journal	Journal of Financial and Quantitative Analysis
Volume	52
Issue number	5
DOIs	https://doi.org/10.1017/S0022109017000692
Publication status	Published - 1 Oct 2017
Externally published	Yes

Bibliographical note

Publisher Copyright:
© Copyright Michael G. Foster School of Business, University of Washington 2017.

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title = "A Multivariate Model of Strategic Asset Allocation with Longevity Risk",

abstract = "Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standard Campbell-Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by U.S. insurance companies, shows that aggregate shocks to survival probabilities are predictors for long-term returns of the longevity-linked securities, and reveals an unexpected predictability pattern. Valuation of longevity risk premium confirms that longevity-linked securities offer inexpensive funding opportunities to asset managers.",

author = "Emilio Bisetti and Favero, \{Carlo A.\} and Giacomo Nocera and Claudio Tebaldi",

note = "Publisher Copyright: {\textcopyright} Copyright Michael G. Foster School of Business, University of Washington 2017.",

year = "2017",

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doi = "10.1017/S0022109017000692",

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T1 - A Multivariate Model of Strategic Asset Allocation with Longevity Risk

AU - Bisetti, Emilio

AU - Favero, Carlo A.

AU - Nocera, Giacomo

AU - Tebaldi, Claudio

N1 - Publisher Copyright: © Copyright Michael G. Foster School of Business, University of Washington 2017.

PY - 2017/10/1

Y1 - 2017/10/1

N2 - Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standard Campbell-Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by U.S. insurance companies, shows that aggregate shocks to survival probabilities are predictors for long-term returns of the longevity-linked securities, and reveals an unexpected predictability pattern. Valuation of longevity risk premium confirms that longevity-linked securities offer inexpensive funding opportunities to asset managers.

AB - Population-wide increase in life expectancy is a source of aggregate risk. Longevity-linked securities are a natural instrument to reallocate that risk. This paper extends the standard Campbell-Viceira (2005) strategic asset allocation model by including a longevity-linked investment possibility. Model estimation, based on prices for standardized annuities publicly offered by U.S. insurance companies, shows that aggregate shocks to survival probabilities are predictors for long-term returns of the longevity-linked securities, and reveals an unexpected predictability pattern. Valuation of longevity risk premium confirms that longevity-linked securities offer inexpensive funding opportunities to asset managers.

UR - https://www.webofscience.com/wos/woscc/full-record/WOS:000414267400015

UR - https://openalex.org/W3122403455

UR - https://www.scopus.com/pages/publications/85038011163

U2 - 10.1017/S0022109017000692

DO - 10.1017/S0022109017000692

M3 - Journal Article

SN - 0022-1090

VL - 52

SP - 2251

EP - 2275

JO - Journal of Financial and Quantitative Analysis

JF - Journal of Financial and Quantitative Analysis

IS - 5

ER -

A Multivariate Model of Strategic Asset Allocation with Longevity Risk

Abstract

Bibliographical note

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