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Here is a glimpse of the next future financial Derivative
read more: http://www.businessweek.com/news/2011-05-17/death-derivatives-emerge-from-pension-risks-of-living-too-long.html
- investment banks see this as an opportunity to create a new market for those willing to bet on life-expectancy rates
- Investors may be attracted to such bets because longevity trends aren’t linked to movements in equities, bonds or commodity markets
- Investors remain unconvinced. Not knowing whether a bet on a group of pensioners’ life spans is correct for decades prevents hedge funds such as London-based Leadenhall Capital Partners LLP from entering the marketplace
- Subprime mortgages sold in the past decade were the genesis of the biggest financial meltdown since the Great Depression. Investment banks passed the risk of borrowers defaulting to the capital markets by packaging, or securitizing, the loans into bonds and selling them to investors and one another.
- Securities based on life expectancy don’t hold the same risks as those linked to subprime mortgages because they are “fully collateralized,” minimizing the risk from a counterparty failing to meet its obligations, Coughlan said. “Subprime was highly leveraged,” Blake said. “This is different.”
read more: http://www.businessweek.com/news/2011-05-17/death-derivatives-emerge-from-pension-risks-of-living-too-long.html
