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A General Equilibrium Analysis of Annuity Rates in the Presence of Aggregate Mortality Risk

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  • Dr Martin Weale
  • Dr Justin van de Ven

Abstract

This paper explores the pricing of annuities in a structural overlapping generations model in which the mortality rate of people when old is uncertain. A market clearing price for annuities is established below the fair price. At this price the willingness of old people to pay the young to carry old people's aggregate mortality risk is balanced by the willingness of the young to bear the risk. The model suggests that aggregate mortality risk is unlikely to be a major influence on annuity pricing.

Suggested Citation

  • Dr Martin Weale & Dr Justin van de Ven, 2006. "A General Equilibrium Analysis of Annuity Rates in the Presence of Aggregate Mortality Risk," National Institute of Economic and Social Research (NIESR) Discussion Papers 282, National Institute of Economic and Social Research.
    • Handle: RePEc:nsr:niesrd:282
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    Cited by:

    1. Bauer, Daniel & Börger, Matthias & Ruß, Jochen, 2010. "On the pricing of longevity-linked securities," Insurance: Mathematics and Economics, Elsevier, vol. 46(1), pages 139-149, February.
    2. Bauer Daniel & Weber Frederik, 2008. "Assessing Investment and Longevity Risks within Immediate Annuities," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(1), pages 1-24, September.
    3. Thomas Post, 2009. "Individual Welfare Gains from Deferred Life-Annuities under Stochastic Lee-Carter Mortality," SFB 649 Discussion Papers SFB649DP2009-022, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.
    4. Bauer, Daniel & Weber, Frederik, 2007. "Assessing Investment and Longevity Risks within Immediate Annuities," Discussion Papers in Business Administration 1982, University of Munich, Munich School of Management.
    5. Thomas Post & Katja Hanewald, 2010. "Stochastic Mortality, Subjective Survival Expectations, and Individual Saving Behavior," SFB 649 Discussion Papers SFB649DP2010-040, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany.

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