Research area: econometrics
Department: ORTEC Centre for Financial Research (OCFR)
Supervisor: dr. Hens Steehouwer
Description: ALM and risk management models for pension funds and insurance companies often work on the basis of stochastic scenario models for important risk and return drivers such as interest and inflation rates, stock returns, etc. Given the situation of the pension fund or insurance company (asset allocation, liability portfolio, etc.), these variables directly influence the risk and return profile of these organizations at both short and long horizons. In recent years an additional risk factor has gotten more attention: longevity risk. Longevity risk is the risk incorporated in long term pension and insurance liabilities by means of the uncertainty in the (increasing trend of the) long term life expectancy of the participants that hold the pension or insurance claims. Small reduction in mortality rates can already cause very large increases in the value of the liabilities. The first objective of this project is to collect and analyze historical time series data of mortality rates by focusing on the separate long and short term properties of this time series behavior and the relations with financial and economic variables. The second objective is to develop scenario models for mortality risk and integrate these into an existing frequency domain scenario model.
Background information:
Information and data of JPMorgan’s LifeMetrics methodology
(www.jpmorgan.com/pages/jpmorgan/investbk/solutions/lifemetrics)
Cui, J. (2007), “Longevity Risk Pricing”, Tilburg University.
Steehouwer H. (2005), “Macroeconomic Scenarios and Reality. A Frequency Domain Approach for Analyzing Historical Time Series and Generating Scenarios for the Future”, PhD thesis, Free University of Amsterdam.