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Fixed income securities with a zero Macaulay duration: senior life settlements

Author

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  • Carlos E. Ortiz
  • Charles A. Stone
  • Anne Zissu

Abstract

Senior life settlements belong to the family of fixed income securities, however, because of the negative stream of cash flows generated by the payment of yearly premia p and the only one positive lump sum received at death of the senior life settler, contrary to the other fixed income securities, senior life settlements, under certain conditions, can achieve a zero Macaulay duration. Investors interested in a hedged portfolio against interest risk could purchase such life settlements. We develop the conditions for which a zero Macaulay duration is obtained.

Suggested Citation

  • Carlos E. Ortiz & Charles A. Stone & Anne Zissu, 2008. "Fixed income securities with a zero Macaulay duration: senior life settlements," Applied Financial Economics Letters, Taylor & Francis Journals, vol. 4(3), pages 205-207.
  • Handle: RePEc:taf:raflxx:v:4:y:2008:i:3:p:205-207
    DOI: 10.1080/17446540701604291
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