Abstract
Longevity securitization enables insurers to manage longevity or mortality risk in the life market. Recent empirical studies identify long-range dependence (LRD) in mortality rates using life tables, which casts doubt on the adequacy of Markovian models for actuarial pricing and risk management. This paper derives the first time-consistent mean–variance longevity hedging strategy for insurers using a stochastic mortality model with LRD. We adopt the open-loop equilibrium control framework and derive an analytical solution to the hedging strategy. Our numerical examples show the relevance of LRD to longevity hedging and the cost of ignoring it.
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