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Longevity Bonds: Financial Engineering, Valuation, and Hedging

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  • David Blake
  • Andrew Cairns
  • Kevin Dowd
  • Richard MacMinn

Abstract

This article examines the main characteristics of longevity bonds (LBs) and shows that they can take a large variety of forms which can vary enormously in their sensitivities to longevity shocks. We examine different ways of financially engineering LBs and consider problems arising from the dearth of ultra‐long government bonds and the choice of the reference population index. The article also looks at valuation issues in an incomplete markets context and finishes with an examination of how LBs can be used as a risk management tool for hedging longevity risks.

Suggested Citation

  • David Blake & Andrew Cairns & Kevin Dowd & Richard MacMinn, 2006. "Longevity Bonds: Financial Engineering, Valuation, and Hedging," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 73(4), pages 647-672, December.
    • Handle: RePEc:bla:jrinsu:v:73:y:2006:i:4:p:647-672
    DOI: 10.1111/j.1539-6975.2006.00193.x
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    1. Unknown, 2005. "Forward," 2005 Conference: Slovenia in the EU - Challenges for Agriculture, Food Science and Rural Affairs, November 10-11, 2005, Moravske Toplice, Slovenia 183804, Slovenian Association of Agricultural Economists (DAES).
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