A General Equilibrium Analysis of Annuity Rates in the Presence of Aggregate Mortality Risk
AbstractThis 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.
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Bibliographic InfoPaper provided by National Institute of Economic and Social Research in its series NIESR Discussion Papers with number 282.
Date of creation: Oct 2006
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This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-12-09 (All new papers)
- NEP-DGE-2006-12-09 (Dynamic General Equilibrium)
- NEP-HEA-2006-12-09 (Health Economics)
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- 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.
- 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.
- 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.
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