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De-risking long-term care insurance

  • Valeria D’Amato
  • Susanna Levantesi
  • Massimiliano MenziettiEmail author
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Abstract

In this paper, we propose a de-risking strategy model for LTC insurers facing with longevity and disability risks, by constructing hedge positions with vanilla disability swaps and options. We rely on long-term care insurance in a multiple state framework. The optimal hedge level for each de-risking strategies is computed, respectively, by minimizing the total cost of the de-risking strategy under the Conditional Value-at-Risk (CVaR) constraint on the total unfunded liabilities and minimizing the CVaR under a total cost constraint. A numerical application is performed, and the results suggest that a de-risking strategy based on disability derivatives can be a viable solution to reduce the portfolio riskiness of LTC insurers.

Keywords

Long-term care insurance De-risking Disability risk Conditional VaR minimization 

Notes

Funding

This study was not funded by any profit or non-profit organization.

Compliance with ethical standards

Conflict of interest

The authors declare that there is no conflict of interests.

Ethical approval

This article does not contain any studies with human participants performed by any of the authors.

Informed consent

Informed consent was obtained from all individual participants included in the study.

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Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2020

Authors and Affiliations

  1. 1.University of SalernoFiscianoItaly
  2. 2.Sapienza University of RomeRomeItaly
  3. 3.University of CalabriaRendeItaly

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