Liability-driven investment in longevity risk management

TL;DR

This paper investigates how liability-driven investment strategies can effectively manage longevity risk, demonstrating through numerical analysis that such strategies outperform traditional ones when liabilities are considered.

Contribution

It introduces and evaluates liability-driven investment strategies specifically tailored for longevity risk management, highlighting their advantages over conventional approaches.

Findings

Liability-driven strategies outperform traditional ones when liabilities are considered.

The advantage of these strategies diminishes in the absence of liabilities.

Numerical analysis confirms the significance of linking liabilities with asset returns.

Abstract

This paper studies optimal investment from the point of view of an investor with longevity-linked liabilities. The relevant optimization problems rarely are analytically tractable, but we are able to show numerically that liability driven investment can significantly outperform common strategies that do not take the liabilities into account. In problems without liabilities the advantage disappears, which suggests that the superiority of the proposed strategies is indeed based on connections between liabilities and asset returns.