Proof Of The Optimal Investment Strategy Of Securitization Products Hedging Longevity Risk

Since the 21 st century,the aging problem of the country has become more and more serious,and in the future,China’s aging degree will further deepen and enter a moderately aging society.This will be accompanied by the rapid development of medical,health,nursing and other industries,as well as the continuous improvement of people’s living standards and happiness.This not only has an impact on the basic pension insurance system of employees and residents,but also makes the pension business of commercial life insurance companies face unprecedented challenges.From the perspective of the insurance industry,such demographic trends will lead to systemic longevity risks,which will make insurance companies face unprecedented pressure on payment of insurance benefits,and have a general adverse impact on the life insurance industry.Once the impact continues for a long time,it will cause many insurance companies to have problems such as balance of assets and liabilities,inadequate solvency,and fall into business difficulties,thus damaging the relevant interests of the insured.Facing the increasingly serious aging problem,both experts and scholars in the insurance discipline and actuarial and risk control departments of insurance companies are committed to exploring the theory and methods of effectively hedging longevity risk.Some scholars have noticed that the financial market is easy to bear this systematic extreme risk,and the working principle of financial derivatives is similar to that of insurance contracts,so the idea of transferring insurance risk to the financial market emerged.At present,foreign countries have made several attempts to issue longevity risk securitization products to hedge longevity risk,and in recent years,new research has begun to explore the feasibility of investing in related products to hedge longevity risk.However,this kind of research is too simple for the pricing method and mortality estimation model of securitized products,which does not conform to the current application trend,and lacks relevant empirical analysis.Therefore,this paper will be based on the research perspective of foreign investment securitization products to hedge longevity risk,introduce relevant models,and focus on using mathematical derivation and empirical research methods to explore the feasibility of commercial life insurance companies investing in longevity risk securitization products to hedge longevity risk from both theoretical derivation and empirical analysis,so as to prove that from the perspective of commercial life insurance companies,Whether we can transfer some longevity risks to the financial market by investing in longevity risk securitization products to hedge longevity risks.In theory,this paper introduces a triggered survival index bond product,and based on risk-neutral pricing and Bellman equation,proves the existence of the optimal strategy for commercial life insurance companies to trade this securitized product to hedge longevity risk,and proves the theoretical feasibility of commercial life insurance companies to implement this investment strategy.In terms of empirical analysis,this paper further defines the relevant parameters of the trigger survival index bond product,using the China Statistical Yearbook from 1991 to 2016,the China Demographic Yearbook from 1991 to 2006,the China Demographic and Employment Statistical Yearbook from 2007 to 2020,and the fifth and sixth population censuses,and the national population data by age and sex at the end of the year and by age The death data of individual people,as well as the death rate data of pension business in the "China Life Insurance Industry Experience Life Table(1990-1993)","China Life Insurance Industry Experience Life Table(2000-2003)" and "China Life Insurance Industry Experience Life Table(2010-2013)" provided by the China Banking and Insurance Regulatory Commission,as well as the one-year Shibor data from December 31,2010 to December 31,2020,Based on the Lee-Carter model and CIR interest rate model,the mortality and interest rate were predicted,and the triggered survival index bond product was priced.Finally,a domestic listed insurance company is selected to calculate its optimal investment strategy based on the principle of utility maximization,and the simulated profit and loss analysis of investment is carried out based on its business data.From an empirical perspective,it is proved that commercial life insurance companies can actually invest in a longevity risk securitization product to hedge longevity risk as investors,thus proving the feasibility of this investment strategy from an empirical perspective.The final conclusion is that for commercial life insurance companies,there theoretically exists a unique optimal investment strategy,which makes the investment strategy of commercial life insurance companies in longevity risk securitization products have a positive impact on their terminal wealth.Moreover,in a simulated profit and loss analysis based on data from a listed insurance company,this investment strategy can make the terminal wealth value of the insurance company exceed the predicted wealth value,and have a positive impact on the terminal wealth value.Finally,this paper summarizes the above research results and gives relevant suggestions from the perspective of commercial life insurance companies and relevant regulatory authorities.