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The life insurance industry has been exposed to high levels of longevity risk born from the mismatch between realized mortality trends and anticipated forecast. Annuity providers are exposed to extended periods of annuity payments. There are no immediate instruments in the market to counter the risk directly. This paper aims to develop appropriate instruments for hedging longevity risk and providing an insight on how existing products can be tailor-made to effectively immunize portfolios consisting of life insurance using a cointegration vector error correction model with regime-switching (RS-VECM), which enables both short-term fluctuations, through the autoregressive structure [AR(1)] and long-run equilibria using a cointegration relationship. The authors also develop synthetic products that can be used to effectively hedge longevity risk faced by life insurance and annuity providers who actively hold portfolios of life insurance products. Models are derived using South African data. The authors also derive closed-form expressions for hedge ratios associated with synthetic products written on life insurance contracts as this will provide a natural way of immunizing the associated portfolios. The authors further show how to address the current liquidity challenges in the longevity market by devising longevity swaps and develop pricing and hedging algorithms for longevity-linked securities. The use of a cointergrating relationship improves the model fitting process, as all the VECMs and RS-VECMs yield greater criteria values than their vector autoregressive model (VAR) and regime-switching vector autoregressive model (RS-VAR) counterpart’s, even though there are accruing parameters involved.

The market model adopted from Ngai and Sherris (2011) is a cointegration RS-VECM for this enables both short-term fluctuations, through the AR(1) and long-run equilibria using a cointegration relationship (Johansen, 1988, 1995a, 1995b), with a heteroskedasticity through the use of regime-switching. The RS-VECM is seen to have the best fit for Australian data under various model selection criteria by Sherris and Zhang (2009). Harris (1997) (Sajjad et al., 2008) also fits a regime-switching VAR model using Australian (UK and US) data to four key macroeconomic variables (market stock indices), showing that regime-switching is a significant improvement over autoregressive conditional heteroscedasticity (ARCH) and generalised autoregressive conditional heteroscedasticity (GARCH) processes in the account for volatility, evidence similar to that of Sherris and Zhang (2009) in the case of Exponential Regressive Conditional Heteroscedasticity (ERCH). Ngai and Sherris (2011) and Sherris and Zhang (2009) also fit a VAR model to Australian data with simultaneous regime-switching across many economic and financial series.

The authors develop a longevity swap using nighttime data instead of usual income measures as it yields statistically accurate results. The authors also develop longevity derivatives and annuities including variable annuities with guaranteed lifetime withdrawal benefit (GLWB) and inflation-indexed annuities. Improved market and mortality models are developed and estimated using South African data to model the underlying risks. Macroeconomic variables dependence is modeled using a cointegrating VECM as used in Ngai and Sherris (2011), which enables both short-run dependence and long-run equilibrium. Longevity swaps provide protection against longevity risk and benefit the most from hedging longevity risk. Longevity bonds are also effective as a hedging instrument in life annuities. The cost of hedging, as reflected in the price of longevity risk, has a statistically significant effect on the effectiveness of hedging options.

This study relied on secondary data partly reported by independent institutions and the government, which may be biased because of smoothening, interpolation or extrapolation processes.

An examination of South Africa’s mortality based on industry experience in comparison to population mortality would demand confirmation of the analysis in this paper based on Belgian data as well as other less developed economies. This study shows that to provide inflation-indexed life annuities, there is a need for an active market for hedging inflation in South Africa. This would demand the South African Government through the help of Actuarial Society of South Africa (ASSA) to issue inflation-indexed securities which will help annuities and insurance providers immunize their portfolios from longevity risk.

In South Africa, there is an infant market for inflation hedging and no market for longevity swaps. The effect of not being able to hedge inflation is guaranteed, and longevity swaps in annuity products is revealed to be useful and significant, particularly using developing or emerging economies as a laboratory. This study has shown that government issuance or allowing issuance, of longevity swaps, can enable insurers to manage longevity risk. If the South African Government, through ASSA, is to develop a projected mortality reference index for South Africa, this would allow the development of mortality-linked securities and longevity swaps which ultimately maximize the social welfare of life assurance policy holders.

The paper proposes longevity swaps and static hedging because they are simple, less costly and practical with feasible applications to the South African market, an economy of over 50 million people. As the market for MLS develops further, dynamic hedging should become possible.

The purpose of this paper is to address the issue of intergenerational and international sharing of longevity and growth risks. Current research on worldwide demographic changes highlights the importance of longevity risk on financial markets and the need to devise optimal hedging vehicles.

The paper presents a potential financial innovation between two countries at different stages of economic development and with different long‐term challenges. This 30‐year‐long swap is structured in such a way to capture the different timing of needed funds of the two countries and the funding capabilities of each generation: the more developed economy requires funds in the future to cover expenses for its ageing population, while the developing economy needs funds today to pay for educational, technological, and other infrastructural services. To price the swap, the paper applies an exponential‐utility‐based pricing method and defines an interval of prices allowing a contract to be agreed upon.

Via the exponential‐utility‐based pricing method, the paper shows how the bid‐ask spread varies with respect to the governments' risk and time preferences.

The paper is believed to be the first to illustrate the structuring and pricing of a long‐term longevity swap between two countries at different stages of economic development and to discuss practical challenges derivative structures would face if they were to implement such a strategy.

The purpose of this paper is to present a clear path to securitize the longevity risk with two distinct swaps in order to inspire a new Chinese life market.

Studies on longevity risk securitization consist of three aspects, respectively, instrument design, pricing methodology and mortality projection. The swaps designed are referenced, respectively, to vanilla and complex survivor swaps (Dowd et al., 2006; Lin and Cox, 2005). Methods applied are RHH model and Gompertz law for mortality projection, as well as two-factor Wang transformation for pricing.

This paper figures out the market price of risk in Chinese annuity market, checks for the sensitivity of the price to parameters and tests the hedging effects by Monte Carlo simulation.

Based on the theoretical and numerical results, this paper suggests an effective way to possibly witness the birth of New Life Market in China.

Two strands of the literature are combined, namely the modeling of disability insurance and the design, valuation and discussion of insurance-linked securities.

This paper provides a discussion regarding the advantages and detriments of disability-linked securities in comparison with mortality-linked bonds and swaps as well as regarding potential disability-linked indices and the potential use. The discussion is followed by an introduction of a potential design and a corresponding valuation of disability bonds and swaps.

This securitization will provide useful tools for the risk management of disability risk in a risk-based regulatory framework.

No disability-linked securities have been defined and discussed so far.

Longevity risk, that is, the uncertainty of the demographic survival rate, is an important risk for insurance companies and pension funds, which have large, and long‐term, exposures to survivorship. The purpose of this paper is to propose a new model to describe this demographic survival risk.

The model proposed in this paper satisfies all the desired properties of a survival rate and has an explicit distribution for both single years and accumulative years.

The results show that it is important to consider the expected shift and risk premium of life table uncertainty and the stochastic behaviour of survival rates when pricing the survivor derivatives.

This model can be applied to the rapidly growing market for survivor derivatives.

The improvements of longevity are intensifying the need for capital markets to be used to manage and transfer the risk through longevity-linked securities. Nevertheless, the difference between the reference population of the hedging instrument and the population of members of a pension plan, or the beneficiaries of an annuity portfolio, determines a significant heterogeneity causing the so-called basis risk. In particular, it is shown that if insurers use financial instruments based on national indices to hedge longevity risk, this hedge can become imperfect. For this reason, it is fundamental to arrange a model allowing to quantify the basis risk for minimising it through a correct calibration of the hedging instrument.

The paper provides a framework for measuring the basis risk impact on the. To this aim, we propose a model that measures the population basis risk involved in a longevity hedge, in the functional data model setting. hedging strategies.

The innovative contribution of the paper occurs in two key points: the modelling of mortality and the hedging strategy. Regarding the first point, the paper proposes a functional demographic model framework (FDMF) for capturing the basis risk. The FDMF model generally designed for single population combines functional data analysis, nonparametric smoothing and robust statistics. It allows to capture the variability of the mortality trend, by separating out the effects of several orthogonal components. The novelty is to set the FDMF for modelling the mortality of the two populations, the hedging and the exposed one. Regarding the second point, the basic idea is to calibrate the hedging strategy determining a suitable mixture of q-forwards linked to mortality rates to maximise the degree of longevity risk reduction. This calibration is based on the key q-duration intended as a measure allowing to estimate the price sensitivity of the annuity portfolio to the changes in the underlying mortality curve.

The novelty lies in linking the shift in the mortality curve to the standard deviation of the historical mortality rates of the exposed population. This choice has been determined by the observation that the shock in a mortality rate is age dependent. The main advantage of the presented framework is its strong versatility, being the functional demographic setting a generalisation of the Lee-Carter model commonly used in mortality forecasting, it allows to adapt to different demographic scenarios. In the next developments, we set out to compare other common factor models to assess the most effective longevity hedge. Moreover, the parsimony for considering together two trajectories of the populations under consideration and the convergence of long-term forecast are important aspects of our approach.

This paper seeks to shed light on the challenges and opportunities demographic transitions bring about to the banking sector. Increasing life expectancy, coupled with an increasing old age dependency ratio has implications for the demand for financial services. This opens a window of opportunity for the banking sector to adjust its services so as to meet these changes and reap the benefit of demographic changes.

The paper uses demographic forecasts made by the United Nations Population Division, to which are applied established economic models on life cycle behaviour. Based on the findings, light is shed on potential scenarios that banks may encounter.

The life cycle models predict a higher overall asset accumulation level and a higher savings level, at least initially, in an ageing population. Other life cycle behaviour models point out that individuals' risk aversion increases with age, while evidence shows that population ageing exposes individuals to greater risks. This increases the need for households to appropriately diversify and manage the risks they face, and encourages the development of products that are better tailored to these growing needs.

The paper proposes that banks can contribute to creating financial stability. Banks can participate in financial education and consequently increase households' motivation to save more and in better ways. Consumer demand encountered by banks is shifting from credit products to savings products. The investment packages currently offered by banks need to adapt to changing needs: combined annuity and life insurance packages are one option.

The anecdote of this paper is to bring the aid effectiveness debate to the sub-national level using the change in night lights as an alternative measure of economic activity. We observe non-robustness of results regarding the effects of aid types on development in antecedent literature to arise due to the effects of aid being treated as a unitary component. provoked by such insightful observation and literature deficiency we employed geocoded data to examine Causal links between the varying types of aid and local economic development in Malawi.

The main objective of the empirical examination is to examine the distributional effects of distinct aid types in local towns in Malawi. For that purpose, the authors thus have a panel dataset for each aid type indicator. Allowing for fixed time and town effects, the baseline light density growth regression model to estimate the effectiveness of disentangled aid on night light intensity was accomplished by employing a spatial dynamic panel data (SDPD) approach with instrumentation. Thus, panel regressions were performed to investigate both conceptual and policy implications.

Cross-city evidence shows that category aid type brings both negative and positive results depending on location within a country. There are cities and locations where certain aid type(s) does not matter whereas it matters most in some. This speaks to different levels of growth between different regions and cities in Malawi. As a result, we observe the size of the effect of distinct aid type(s) on economic activities to vary (increase/decrease) with the size of the location.

It may be interesting to generalize results from this study to a panel case over long periods of time using dynamic modelling with both threshold analysis and interaction effects Institutional factors need also to be includes in similar analyses. The authors leave this for a follow-up study. Second, the most immediate opportunity is application of the methodology to the other countries with geo-coded AidData. The authors expect to expand the analysis by taking into account other determinants of aid effectiveness at the local level, including the characteristics of donors and varieties of targeted development programmes.

Results in some geographical locations and towns indicate that the authors do not have sufficient evidence to reject the null hypothesis of the research study at 5% level. However, other geographical locations like Zomba indicate that aid category has a significant bearing on local economic growth. Therefore, as opposed to unitary aid approaches, we recommend distribution of relevant disentangled growth-enhancing aid type to specific administrative regions but with a bias toward smaller socially and economically deprived regions and towns.

The unique insight from this study is that foreign aid-growth benefits are symmetric and skewed toward large towns. If such unbalance aid-growth benefits anomalies are not addressed in a transparent manner it has the possibilities of promoting interregional migration which from Nielsen et al. (2011) and Findley et al (2011)'s evidence might trigger regional tensions and violent armed conflicts. Thus, there is need for equitable distribution of social and economic developmental aid free from political or ethnic inclination but based on transparent needs assessment model(s). Locations where social and developmental aid types seem to have negative or no effect serves as a salient indicator of aid leakages due to rent seeking tendencies of bureaucrats or weak institutions which ultimately pose welfare burden on citizens.

Apart from contributing to the extant literature on aid and economic growth, this paper relates to at least three other strands of research. First, the work partially answers a call by Minoiu and Reddy (2010), Schmid (2013) and Khomba and Trew (2019) for researchers to examine the growth effects of distinct aid types on local economic development. Second, the increase in aid volumes to Africa and the worsening of economic conditions has been the subject of considerable interest amongst development economists (e.g. Ravenhill, 1990; Lancaster, 1999; Easterly, 2003; Bräutigam and Knack, 2004 and Collier, 2006). This makes the use of a major aid recipient developing economy (Malawi) as a laboratory an anecdote. Third, use of disaggregated as opposed to unitary aid data with an African flavour.

The purpose of this paper is to present a systematic overview of the current state of research on innovations in financial services and identifies the areas that have received less attention, and hence offer opportunities for future research.

An extensive search identified 121 research papers that have studied innovations in financial services from January 1990 to March 2015. A thorough content analysis objectively organized and coded the studies based on various aspects including publication year, focus of study, methodology, unit of analysis, sample, data analysis method, and geographical region. Analysis of the resulting data presents an overview of the research and identifies areas for future research.

The findings indicate that research on innovations in financial services is diverse and has explored various topics. The findings summarize the research papers with regards to each of the aforementioned aspects and offer researchers directions for future research.

The sample size of 121 articles is an adequate sample size for the purpose of the study and it is in line with similar studies on innovations in other areas. However, future research can expand the study to include more academic journals in addition to reviewing and synthesizing the qualitative aspects of studies and meta-analysis of the identified relationships.

The study is the first to present a holistic overview of the current state of research on innovations in financial services. The findings offer clear directions to researchers for future research and hence can be used to promote research in these areas.

The purpose of this study is to understand the specific reasons why developed countries could easily start implementing innovative alternative fuel vehicles (e.g. electric vehicles or EVs) while the implementation in developing countries looks so far-fetched, with respect to infrastructure and downstream activities, and suggest the steps that can be taken to effectively address these issues.

This research undertakes case study – Tesla (USA), Mahindra and Mahindra (India) and Tata Motors to bring out the problems being faced by manufacturers from developing countries vis-a-vis the developed countries. The consumers’ side has been adequately represented though an in-depth survey. An analysis is also carried out as to how Tesla has accrued competitive leverage by innovating and vertical integration of up as well as downstream systems.

EV infrastructure remains grossly inadequate in developing countries like India. Two key areas that remain significantly unexplored are the installation of charging stations at parking lots and at the housing clusters and lack of competitive leverage in the services, processes and other downstream systems due to limited research and development capabilities. The performance metrics of domestic EVs lag those of conventional vehicles as well as foreign competitors like Tesla. Range anxiety is ranked as number one in the major concerns among the potential mass buyers of electric vehicles in India.

The value of the paper lies in an in-depth analysis of the relationship between horizontal and vertical perspectives as well as the impact of the product eco-system innovation on both the upstream as well as downstream nodes in the supply chain. Whereas the consumer attitudes and perspectives on e-mobility are inferred from a survey, the impact analysis matrix is used for analyzing the competitive leverage of Tesla through several features in the upstream, downstream and servitization.