Study On Hedging Longevity Risk With Mortality Forward Contract In China

Longevity risk refer to the risk arising from the fact that the average actual life span of an individual or group in the future is higher than the expected life span.The uncertainty of human life extension has brought huge challenges to the risk management of the life insurance industry around the world.In our country,with the continuous increase in life expectancy of the population and the decline in the birth rate,we are gradually faced with a serious aging problem,which aggravates the threat brought by longevity risk to the insurance industry.At the same time,the exploration of longevity risk management in China at the present stage is still insufficient,especially in the application of mortality related securities and derivatives.Most of the research only stays at theoretical feasibility analysis,and there is not enough data reference materials.Therefore,based on the latest demographic data in China,this paper quantifies the effectiveness of mortality forward contracts to hedge longevity risk in China under various circumstances,so as to provide reference for longevity risk management in China.Firstly,the ACF(0)multi-population mortality model was used to fit the mortality rates of male population and urban male subgroup in China,and the fitting effect was compared with the Lee-Carter single-population mortality model to verify the applicability of the ACF(0)model.Then,according to the prediction results of ACF(0)model,this paper analyzes the average life expectancy trend and longevity risk in China.Secondly,this paper takes the longevity risk management of certain benefit pension plans as the goal,and uses mortality forward contracts as hedging tools to derive the optimal hedge quantity formula of model-free static hedging and Delta dynamic hedging under floating interest,and sets three indicators to measure the effectiveness of hedging.After that,based on the prediction of mortality in our country,this paper quantitatively analyzes the effectiveness of the use of mortality forward contracts to manage longevity risk in our country under model-free static hedging and Delta dynamic hedging,as well as the impact of the basis risk,interest rate level and longevity risk level.It also analyzes the application of the two hedging methods from a practical point of view.Finally,based on the previous research,this paper puts forward several suggestions for the practice of mortality forward contracts to hedge longevity risk in China.