Three small population-index-based hedges have been completed so far which have included some basis risk. However, the importance of analysing basis risk will change with market expansion and, crucially, the approach of Solvency II, which requires basis risk to be expressly quantified. Mattias Eng and Michalis Ioannides decompose the sources of basis risk in longevity hedges and examine the key elements: base table, improvement factors and sampling error
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