Key Q-Duration: A Framework for Hedging Longevity Risk

• DOI: 10.2143/ast.42.2.2182804
• Publication Date: 2012-11-01
• Authors: Johnny Siu‐Hang Li; Ancheng Luo
• Keywords: Longevity Risk; Hedge; Basis risk

When hedging longevity risk with standardized contracts, the hedger needs to calibrate hedge carefully so that it can effectively reduce risk. In this article, we present a calibration method is based on matching mortality rate sensitivities. Specifically, introduce measure called key q-duration, which allows us estimate price sensitivity of life-contingent liability each portion underlying curve. Given measure, one easily construct small number q-forward contracts. We further propose an extension for associated multiple birth cohorts, and another accommodating population basis