Patent ID: 8533087
Filing Date: 2013-09-10
Classification: G06Q

Abstract:
1. A computer-implemented method of estimating a capital reserve requirement to cover a longevity risk exposure of a financial instrument in a case of a future longevity shock, the financial instrument undertaking to pay sums according to a payment schedule of amounts arranged to match with future cash flow obligations of a pension fund to at least a portion of its payee members; the method comprising: (a) calculating, using computing apparatus, an expected payment schedule of the financial instrument by calculating what cash flow obligations of the pension fund to its relevant payee members would be in the case of an expected longevity scenario for the relevant pension fund payee members occurring, said calculating of an expected payment schedule comprising mortality level adjustments corresponding to each relevant pension fund payee member's socio-economic characteristics; (b) calculating, using computing apparatus, a present value of the financial instrument in a case of a stressed longevity scenario for the pension fund payee membership in which a particular and non-randomly selected longevity-related shock to the expected longevity scenario of the relevant pension fund payee members occurs, wherein said stressed longevity scenario is constructed to comprise, for each relevant pension fund payee member, a best estimate longevity projection of the pension fund payee member output by a longevity projection model, the model having been updated to take into account the experience of a mortality trend shock over the duration of a time horizon; (c) calculating, using computing apparatus and using the calculations of the expected payment schedule and a present value of the financial instrument in the case of the stressed longevity scenario, an estimate of a longevity capital reserve required to ensure that the future cash flow obligations of the financial instrument would be covered in the event that the stressed longevity scenario were to occur.