Intergenerational Effects of Guaranteed Pension Contracts
AbstractIn this paper we show that there exist intergenerational cross-subsidization effects in guaranteed interest rate life and pension contracts as the different generations partially share the same reserves. Early generations build up bonus reserves, which are left with the company at expiry of the contract. These bonus reserves function partly as a subsidy of later generations, such that the latter earn a risk-adjusted return above the risk-free rate. Furthermore, we show that this subsidy may be large enough to explain why late generations buy guaranteed interest rate products, which otherwise would not have been part of the optimal portfolio allocation. The Geneva Risk and Insurance Review (2008) 33, 19–46. doi:10.1057/grir.2008.3
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Bibliographic InfoArticle provided by Palgrave Macmillan in its journal The Geneva Risk and Insurance Review.
Volume (Year): 33 (2008)
Issue (Month): 1 (June)
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Other versions of this item:
- Døskeland, Trond M. & Nordahl, Helge A., 2006. "Intergenerational Effects of Guaranteed Pension Contracts," Discussion Papers, Department of Business and Management Science, Norwegian School of Economics 2006/13, Department of Business and Management Science, Norwegian School of Economics, revised 21 Jun 2007.
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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