Work

Contract structure and risk aversion in longevity risk transfers

Year: 2026

Type: article

Abstract: This paper develops an economic framework for optimal longevity risk transfer between a buyer and a seller with different risk aversions. We compare static (long-dated, pre-committed) and dynamic (short-dated, rolled) longevity swaps in a Stackelberg game. We find that static contracts are preferred when the buyer is more risk averse, while dynamic contracts are preferred when the seller is more risk averse. For the capital-market setting, we extend the benchmark by introducing seller-side ambiguity about the mortality distribution and robust max-min valuation. Even moderate ambiguity can eliminate the market for static swaps, while dynamic designs remain viable. We then extend the analysis to index-based swaps with basis risk: relative to indemnity swaps, optimal loadings are lower and gains are smaller for both parties, though the static-dynamic preference pattern is unchanged.

Source: Insurance Mathematics and Economics

DOI: 10.1016/j.insmatheco.2026.103251

Authors: David Landriault, Bin Li, Hong Li, Yuanyuan Zhang

Institutions: University of Waterloo, Monash University

Language: English

Topic: Insurance and Financial Risk Management

Subfield: Economics and Econometrics

Field: Economics, Econometrics and Finance

Domain: Social Sciences

Open Access status: hybrid

Estimated APC paid: $3,270

Funder: Natural Sciences and Engineering Research Council of Canada