The Cost of Longevity Risk Transfer by Capital Solution De-risking Strategy

In this paper, we develop a longevity swap de-risking strategy to mitigate the impact of the longevity risk related to payments that depend on how long individuals are going to live. In order to ensure the development of an effi-cient capital market for longevity risk transfers, the longevity hedge would allow longevity risk to be shared efficiently and fairly between the parties. Our results show that the fixed proportional risk premium that the counter-party requires to take on the longevity risk varies by changing the mortality model adopted to represent the evolution of the longevity of the population underlying the swap and that, as the risk premium changes, the total transfer of longevity risk may become inefficient.