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Financial Innovation for an Aging World

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Author Info
Olivia S. Mitchell
John Piggott
Michael Sherris
Shaun Yow

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Abstract

Over the last half-century, around the world, many nations have seen plummeting fertility rates and mounting life expectancies. These two factors are the engine behind unprecedented global aging. In this paper, we explore how the demographic transition may influence financial markets and, in turn, how financial market innovation might help resolve concerns flowing from global aging trends. We first provide context by reviewing the economics, finance, and insurance-related literature on how global aging patterns may influence capital markets. We then turn to insurance markets, and discuss a range of products and policies, including both retail and wholesale financial offerings for various forms of life annuities, long-term care benefits, reverse mortgages, securitization of longevity risk, inflation-protected assets, reinsurance, guarantees, derivative contracts on residential property price indices, mortality swaps and longevity derivative contracts. We also indicate how new public-private partnerships might be beneficial in enhancing the future environment for old-age risk management.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 12444.

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Date of creation: Aug 2006
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Handle: RePEc:nbr:nberwo:12444

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Find related papers by JEL classification:
G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies
G23 - Financial Economics - - Financial Institutions and Services - - - Pension Funds; Other Private Financial Institutions
J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends and Forecasts
J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped
J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy
J21 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Labor Force and Employment, Size, and Structure
J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
N2 - Economic History - - Financial Markets and Institutions

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References listed on IDEAS
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  1. Mankiw, N. Gregory & Weil, David N., 1989. "The baby boom, the baby bust, and the housing market," Regional Science and Urban Economics, Elsevier, vol. 19(2), pages 235-258, May. [Downloadable!] (restricted)
    Other versions:
  2. Olivia S. Mitchell & John Piggott, 2004. "Unlocking Housing Equity in Japan," NBER Working Papers 10340, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  3. Amy Finkelstein & Kathleen McGarry, 2003. "Private Information and its Effect on Market Equilibrium: New Evidence from Long-Term Care Insurance," NBER Working Papers 9957, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  4. Robert J. Shiller, 1998. "Social Security and Institutions for Intergenerational, Intragenerational, and International Risk Sharing," JCPR Working Papers 43, Northwestern University/University of Chicago Joint Center for Poverty Research.
    Other versions:
  5. repec:pal:imfstp:v:50:y:2003:i:2:p:3 is not listed on IDEAS
  6. Marie-Eve Lachance & Olivia S. Mitchell, 2003. "Understanding Individual Account Guarantees," Working Papers wp035, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
    Other versions:
  7. David McCarthy & Olivia S. Mitchell, 2003. "International Adverse Selection in Life Insurance and Annuities," NBER Working Papers 9975, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Darius Lakdawalla & Tomas Philipson, 2002. "The Rise in Old-Age Longevity and the Market for Long-Term Care," American Economic Review, American Economic Association, vol. 92(1), pages 295-306, March. [Downloadable!]
    Other versions:
  9. Alex Cowley & J. David Cummins, 2005. "Securitization of Life Insurance Assets and Liabilities," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(2), pages 193-226. [Downloadable!] (restricted)
  10. James F. Moore & Olivia S. Mitchell, . "Projected Retirement Wealth and Saving Adequacy," Pension Research Council Working Papers 98-1, Wharton School Pension Research Council, University of Pennsylvania.
  11. Andrew B. Abel, 2001. "Will Bequests Attenuate The Predicted Meltdown In Stock Prices When Baby Boomers Retire?," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 589-595, November. [Downloadable!] (restricted)
    Other versions:
  12. Grant M Scobie & John K Gibson, 2003. "Household Saving Behaviour in New Zealand: Why do Cohorts Behave Differently?," Treasury Working Paper Series 03/32, New Zealand Treasury. [Downloadable!]
  13. Engelhardt, Gary V. & Poterba, James M., 1991. "House prices and demographic change: Canadian evidence," Regional Science and Urban Economics, Elsevier, vol. 21(4), pages 539-546, December. [Downloadable!] (restricted)
  14. Pauly, Mark V, 1990. "The Rational Nonpurchase of Long-term-Care Insurance," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 153-68, February. [Downloadable!] (restricted)
  15. E Philip Davis, 2006. "How Will Ageing Affect the Structure of Financial Markets?," RBA Annual Conference Volume, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia. [Downloadable!]
  16. Olivia S. Mitchell & John Piggott & Satoshi Shimizutani, 2004. "Aged-Care Support in Japan: Perspectives and Challenges," NBER Working Papers 10882, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  17. Author-Name: John Geanakoplos & Michael Magill & Martine Quinzii, 2004. "Demography and the Long-Run Predictability of the Stock Market," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 35(2004-1), pages 241-326. [Downloadable!]
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  18. Salvador Valdés-Prieto, 2005. "Securitization of taxes implicit in PAYG pensions," Economic Policy, CEPR, CES, MSH, vol. 20(42), pages 215-265, 04. [Downloadable!] (restricted)
  19. Marie-Eve Lachance & Olivia S. Mitchell, 2002. "Guaranteeing Defined Contribution Pensions: The Option to Buy-Back a Defined Benefit Promise," NBER Working Papers 8731, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  20. Robin Brooks, 2006. "Demographic Change and Asset Prices," RBA Annual Conference Volume, in: Christopher Kent & Anna Park & Daniel Rees (ed.), Demography and Financial Markets Reserve Bank of Australia. [Downloadable!]
  21. Wolfram J. Horneff & Raimond Maurer & Olivia S. Mitchell & Ivica Dus, 2006. "Optimizing the Retirement Portfolio: Asset Allocation, Annuitization, and Risk Aversion," NBER Working Papers 12392, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  22. מחקר - ביטוח לאומי, 1900. "קרן מנוף," Working Papers 35, National Insurance Institute of Israel. [Downloadable!]
  23. Leora Friedberg & Anthony Webb, 2006. "Life is Cheap: Using Mortality Bonds to Hedge Aggregate Mortality Risk," NBER Working Papers 11984, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  24. Andrew Dick & Alan M. Garber & Thomas E. MaCurdy, 1994. "Forecasting Nursing Home Utilization of Elderly Americans," NBER Chapters, in: Studies in the Economics of Aging, pages 365-394 National Bureau of Economic Research, Inc. [Downloadable!]
  25. André Babeau & Teresa Sbano, 2003. "Household Wealth in the National Accounts of Europe, the United States and Japan," OECD Statistics Working Papers 2003/2, OECD, Statistics Directorate. [Downloadable!]
  26. Warwick J. McKibbin, 2005. "The Global Macroeconomic Consequences Of A Demographic Transition," CAMA Working Papers 2006-06, Australian National University, Centre for Applied Macroeconomic Analysis. [Downloadable!]
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  27. Robin Brooks, 2002. "Asset-Market Effects of the Baby Boom and Social-Security Reform," American Economic Review, American Economic Association, vol. 92(2), pages 402-406, May. [Downloadable!]
  28. James M. Poterba, 2001. "Demographic Structure And Asset Returns," The Review of Economics and Statistics, MIT Press, vol. 83(4), pages 565-584, November. [Downloadable!] (restricted)
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hazel Bateman & Susan Thorp, 2007. "Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations," Research Paper Series 200, Quantitative Finance Research Centre, University of Technology, Sydney. [Downloadable!]
    Other versions:
  2. Yoon Sook Kim & Paul S. Mills & Todd Groome & François Haas & John Kiff & Shinobu Nakagawa & Parmeshwar Ramlogan & Oksana Khadarina & Nicolas R. Blancher & William Lee, 2006. "The Limits of Market-Based Risk Transfer and Implications for Managing Systemic Risks," IMF Working Papers 06/217, International Monetary Fund. [Downloadable!]
  3. Ferro, Gustavo, 2008. "On annuities: an overview of the issues," MPRA Paper 15436, University Library of Munich, Germany, revised May 2009. [Downloadable!]
  4. Kathrin Dummann, 2008. "Retirement saving and attitude towards financial intermediaries – Evidence for Germany," Thuenen-Series of Applied Economic Theory 99, University of Rostock, Institute of Economics, Germany. [Downloadable!]
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