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qhedge
Posts: 136
Joined: November 26th, 2004, 6:14 am

Life policy trading desk.

June 18th, 2009, 6:56 am

It's all about pricing/mispricing life expectancy. Quite interesting that banks are getting into this niche now. The market exists for quite some time and had its good share of scandals (google: Mutual Benefits Corporation).
Last edited by qhedge on June 17th, 2009, 10:00 pm, edited 1 time in total.
 
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jomni
Posts: 999
Joined: January 26th, 2005, 11:36 pm

Life policy trading desk.

June 18th, 2009, 8:28 am

yeah, don't forget to price in the credit risk (the insurance company staying afloat).
 
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vbprogrammer
Topic Author
Posts: 306
Joined: December 8th, 2003, 7:28 pm

Life policy trading desk.

June 18th, 2009, 10:19 am

QuoteOriginally posted by: KDanIt's all about pricing/mispricing life expectancy. Quite interesting that banks are getting into this niche now. The market exists for quite some time and had its good share of scandals (google: Mutual Benefits Corporation).that is right. there are some interesting papers on mortality rates forecast.
 
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Yossarian22
Posts: 184
Joined: March 15th, 2007, 2:27 am

Life policy trading desk.

June 18th, 2009, 3:29 pm

Last edited by Yossarian22 on June 17th, 2009, 10:00 pm, edited 1 time in total.
 
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Yossarian22
Posts: 184
Joined: March 15th, 2007, 2:27 am

Life policy trading desk.

June 18th, 2009, 3:31 pm

Watch out there is a huge amount of fraud in this business. See Here!
 
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qhedge
Posts: 136
Joined: November 26th, 2004, 6:14 am

Life policy trading desk.

June 19th, 2009, 6:05 am

QuoteOriginally posted by: Yossarian22Watch out there is a huge amount of fraud in this business. See Here!As vb mentioned the bank hiring quanty staff for a trading desk I would assume that they do the modelling themselves and therefore are less prone to depend on the valuations of some shady third party.Instead I wonder who the clients for that desk would be. Insurance companies hedging against longevity risk?
 
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Yossarian22
Posts: 184
Joined: March 15th, 2007, 2:27 am

Life policy trading desk.

June 20th, 2009, 4:23 am

QuoteOriginally posted by: KDanQuoteOriginally posted by: Yossarian22Watch out there is a huge amount of fraud in this business. See Here!As vb mentioned the bank hiring quanty staff for a trading desk I would assume that they do the modelling themselves and therefore are less prone to depend on the valuations of some shady third party.Instead I wonder who the clients for that desk would be. Insurance companies hedging against longevity risk?lol.. dude, model the cashflows on a policy that doesn't exist! or better yet the guy hasn't died yet but according to my calculations he must have touched the shroud of turin...hmm doctor *nod* doctor *nod* where did he get the blood infected with AIDS? ........... quanty staff my arse
 
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qhedge
Posts: 136
Joined: November 26th, 2004, 6:14 am

Life policy trading desk.

July 13th, 2009, 9:06 am

got an ad from wiley today and remembered this thread: http://eu.wiley.com/WileyCDA/WileyTitle ... 41945.html
Last edited by qhedge on July 12th, 2009, 10:00 pm, edited 1 time in total.
 
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LTrain
Posts: 1077
Joined: June 23rd, 2004, 6:42 pm

Life policy trading desk.

July 15th, 2009, 4:29 pm

Slightly OTObviously I don't know about this specific position, but I was approached outside of work by one of these life insurance critters. The game: they purchase a life insurance policy in my name, they pay all premiums, and after two years I get a $100k lump sum or the option to take-over the policy. I believe the system works because life insurance policies are becoming tradable. The broker-critter is speculating that he can sell my policy for more $$$ than their premium outlay. Something is magic about the two year number, but Im not sure what. They do not plan to keep the policy so I think the actuarial data are not relevent. I also speculate that they are creating CDO-like structures of policies to sell into the secondary market. All they care about is the market value of the policy, not my longevity, or the death benefit. Interesting anyway.......
 
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deepvalue
Posts: 918
Joined: April 25th, 2007, 6:08 am

Life policy trading desk.

July 18th, 2009, 7:01 am

QuoteOriginally posted by: LTrainThey do not plan to keep the policy so I think the actuarial data are not relevent. your mortality determines the resale value of the policy, so the actuarial data is relevant. they are betting that you under-estimate your chance of death.
 
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hhhmmm
Posts: 24
Joined: January 4th, 2008, 9:44 pm

Life policy trading desk.

July 18th, 2009, 9:03 am

QuoteOriginally posted by: LTrainSlightly OTObviously I don't know about this specific position, but I was approached outside of work by one of these life insurance critters. The game: they purchase a life insurance policy in my name, they pay all premiums, and after two years I get a $100k lump sum or the option to take-over the policy. I believe the system works because life insurance policies are becoming tradable. The broker-critter is speculating that he can sell my policy for more $$$ than their premium outlay. Something is magic about the two year number, but Im not sure what. They do not plan to keep the policy so I think the actuarial data are not relevent. I also speculate that they are creating CDO-like structures of policies to sell into the secondary market. All they care about is the market value of the policy, not my longevity, or the death benefit. Won't this create some very perverse incentives ? In the US, they got some unfortunate side effects when they privatized the prison system. Strong economic interests in getting people incarcerated can lead to bad things.And now we get easily tradeable derivatives that are valuable when life-expectancy is low, possibly on a person to person basis ?
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