The Securitization of Longevity Risk and Its Implications for Retirement Security
The Securitization of Longevity Risk and Its Implications for Retirement Security
The economic significance of longevity risk for governments, corporations, and individuals has begun to be recognized and quantified. Traditional insurance for managing this risk has serious limitations due to binding capacity constraints. The much larger capacity of capital markets warrants more attention to transforming longevity risk from its pure risk form to a speculative risk form so that it can be traded in the capital markets. The chapter considers how defined contribution plans can be managed to increase the sustainable length of retirement and how defined benefit plans can be managed to reduce pension risk using longevity risk hedging schemes.
Keywords: Longevity risk, retirement, securitization, buyout, longevity swap
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