In the framework of longevity risk hedging, a price-adjusted longevity risk natural hedging model is established by introducing the exogenous product prices. Firstly, the analytical solution of the optimal product mix of the model is derived by adopting the optimization theory. Then, optimal prices for life insurance products and annuities are obtained under the constraint that the actual product mix equals to the optimal product mix of the model. Under the optimal prices, the optimal product mix of the model is truly realized, that is, the actual product mix is exactly the optimal product mix which minimizes the longevity risk. Finally, the effectiveness of the natural hedging strategy based on the effect of price adjustment is illustrated by using numerical examples. Furthermore, the impact of the interest rates, age and gender on the natural hedging strategy is also examined.
ZENG Yan, ZENG Qing-zou, KANG Zhi-lin
. Natural Hedging Strategy for Longevity Risk Based on Price Adjustment[J]. Chinese Journal of Management Science, 2015
, 23(12)
: 11
-19
.
DOI: 10.16381/j.cnki.issn1003-207x.2015.12.002
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