Ying Wang

Date of Award


Degree Type


Degree Name

Master of Science


Applied Mathematics


Dr. Matt Davison



As mortality improves faster than expected, life insurance companies are exposed to longevity risks through annuity business, even if they reduce their exposure by pooling individual mortality experience. However, liabilities in life insurance and annuity businesses move in opposite directions in response to possible mortality improvements, which creates a natural hedging opportunity. This thesis focuses on investigation of this natural hedge potential inherent in the portfolio consisting of annuity and life insurance elements in various scenarios over an extended period of time. The numerical results suggest that the ruin probability is controlled to a very low level when natural hedging is considered. In addition, the impacts of business composition (annuity/insurance) and interest rate are also examined. With the natural hedging implemented, a desired effect of risk reduction can be reached by either pricing with a low discount rate or gaining a high rate of return on capital investment.



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