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“Information effects in longevity-linked vs purely financial portfolios”

Author

Listed:
  • Elisa Luciano

    (University of Turin and Collegio Carlo Alberto)

  • Antonella Tolomeo

    (University of Turin)

Abstract

The development of a market for longevity bonds is considered beneficial to investors, because it offers diversification opportunities. However, understanding of both longevity and interest rate risks is required to rationally invest in longevity bonds. This paper models the optimal behavior of an investor facing the choice between a traditional and a longevity bond. When buying longevity bonds, he can decide to pay a fee and separate the information on di fferent risks affecting its bond value, or to remain uninformed and receive a non-separating signal. The uninformed investor optimally filters his pooled signal. The paper provides conditions under which the optimal portfolio choice is the longevity bond and conditions under which diversification is not beneficial. A calibrated example is provided.

Suggested Citation

  • Elisa Luciano & Antonella Tolomeo, 2016. "“Information effects in longevity-linked vs purely financial portfolios”," CeRP Working Papers 160, Center for Research on Pensions and Welfare Policies, Turin (Italy).
    • Handle: RePEc:crp:wpaper:160
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    File URL: http://www.cerp.carloalberto.org/wp-content/uploads/2016/04/WP_160.pdf
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    Cited by:

    1. Elisa Luciano & Antonella Tolomeo, 2016. "Are information and portfolio diversification substitutes or complements?," Carlo Alberto Notebooks 456, Collegio Carlo Alberto.

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