Exchange traded funds for trading longevity risk?

by Artemis on September 16, 2011

The market for longevity risk trading, which many say has huge potential, could use exchange traded funds (ETF’s) as a trading mechanism once the market has enough liquidity, according to this article from IPE.com. When that liquidity will come is a question that the subject of the article Deutsche Börse would like to have answered.

Deutsche Börse who run the Xpect longevity indices suggested at a recent conference that trading would be limited to ETF funds and futures contracts, adding that regular trading would not be possible due to monthly releases of new data. This is one of the problems with an index which only prices on a monthly basis, it makes it much tougher to get to a point of liquidity.

Hendrik Rogge, who manages the Xpect indices, said; “I don’t think we will see day traders on longevity indices because changes occur on a monthly basis,” he said when asked about such a possibility. It will be hard to find a day trader willing to trade within the days we publish these indices. Having ETFs – yes. I think it is a possible solution.”

If a market can be established for trading longevity risk it will become a hedge for many whose interests contain risk of people living longer. The market could be enormous but we feel it’s likely to take a few more years before it becomes truly liquid.

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