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Annuities, Bequests and Portfolio Diversification

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  • D'ALBIS Hippolyte
  • THIBAULT Emmanuel

Abstract

In this article, the diversification motives of the demand for annuities is analyzed. Using a model allowing for the uncertainty of both the human life length and the interest rate, the Decision Maker is supposed to choose an optimal portfolio to maximize a bequest. Conditions under which an increase in the risk of bond returns increase the demand for annuities are proposed and discussed. Moreover, it is shown that, contrary to previous claims, more risk adversion is associated with a lower demand for annuities. Copyright � 2010 Wiley Periodicals, Inc..

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Paper provided by LERNA, University of Toulouse in its series LERNA Working Papers with number 09.14.290.

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Date of creation: Jun 2009
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Handle: RePEc:ler:wpaper:09.14.290

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  1. Thomas Davidoff & Jeffrey R. Brown & Peter A. Diamond, 2005. "Annuities and Individual Welfare," American Economic Review, American Economic Association, vol. 95(5), pages 1573-1590, December.
  2. EECKHOUDT, Louis & ETNER, Johanna & SCHROYEN, Fred, 2007. "A benchmark value for relative prudence," CORE Discussion Papers 2007086, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Benjamin M. Friedman & Mark Warshawsky, 1985. "The Cost of Annuities: Implications for Saving Behavior and Bequests," NBER Working Papers 1682, National Bureau of Economic Research, Inc.
  4. Miles S. Kimball, 1989. "Precautionary Saving in the Small and in the Large," NBER Working Papers 2848, National Bureau of Economic Research, Inc.
  5. Friedman, Benjamin M & Warshawsky, Mark J, 1990. "The Cost of Annuities: Implications for Saving Behavior and Bequests," The Quarterly Journal of Economics, MIT Press, vol. 105(1), pages 135-54, February.
  6. David Blake, 1999. "Annuity Markets: Problems and Solutions," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan, vol. 24(3), pages 358-375, July.
  7. Pratt, John W, 1988. " Aversion to One Risk in the Presence of Others," Journal of Risk and Uncertainty, Springer, vol. 1(4), pages 395-413, December.
  8. Finkelshtain, Israel & Kella, Offer & Scarsini, Marco, 1999. "On risk aversion with two risks," Journal of Mathematical Economics, Elsevier, vol. 31(2), pages 239-250, March.
  9. Hadar, Josef & Seo, Tae Kun, 1990. "The Effects of Shifts in a Return Distribution on Optimal Portfolios," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(3), pages 721-36, August.
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  1. Visite guidée au coeur des travaux du Meilleur jeune économiste 2012 (1/2)
    by Matthieu Solignac in Regards croisés sur l'économie on 2012-05-28 19:26:09

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