Exchanging uncertain mortality for a cost
We analyze a pooled annuity fund from a participant’s perspective by comparing it to a mortality-linked fund, a type of variable payout life annuity, that gives a return linked to the force of mortality but subject to a cost. Fixing the instantaneous volatility of return on wealth, we find that the expected return on the pooled annuity fund is higher except when the costs are very low in the mortality-linked fund. Similar results are obtained when maximizing the expected lifetime utility of consumption, assuming a constant relative risk aversion utility function. In both settings, our results indicate that a participant may be willing to accept the mortality risk of the pooled annuity fund, even when only 100 individuals are pooling their mortality in the pooled annuity fund.
Volume (Year): 52 (2013)
Issue (Month): 1 ()
|Contact details of provider:|| Web page: http://www.elsevier.com/locate/inca/505554|
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.:
- Vittas, Dimitri, 2011. "The mechanics and regulation of variable payout annuities," Policy Research Working Paper Series 5762, The World Bank.
- John Piggott & Emiliano A. Valdez & Bettina Detzel, 2005. "The Simple Analytics of a Pooled Annuity Fund," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(3), pages 497-520.
- Valdez, Emiliano A. & Piggott, John & Wang, Liang, 2006. "Demand and adverse selection in a pooled annuity fund," Insurance: Mathematics and Economics, Elsevier, vol. 39(2), pages 251-266, October.
- Olivia S. Mitchell, 1999.
"New Evidence on the Money's Worth of Individual Annuities,"
American Economic Review,
American Economic Association, vol. 89(5), pages 1299-1318, December.
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, "undated". "New Evidence on the Money's Worth of Individual Annuities," Pension Research Council Working Papers 97-9, Wharton School Pension Research Council, University of Pennsylvania.
- Olivia S. Mitchell & James M. Poterba & Mark J. Warshawsky, 1997. "New Evidence on the Money's Worth of Individual Annuities," NBER Working Papers 6002, National Bureau of Economic Research, Inc.
- Alexander Braun & Nadine Gatzert & Hato Schmeiser, 2012. "Performance and Risks of Open‐End Life Settlement Funds," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 79(1), pages 193-230, March.
- Stamos, Michael Z., 2008. "Optimal consumption and portfolio choice for pooled annuity funds," Insurance: Mathematics and Economics, Elsevier, vol. 43(1), pages 56-68, August.
- Lee Lockwood, 2012. "Bequest Motives and the Annuity Puzzle," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 15(2), pages 226-243, April.Full references (including those not matched with items on IDEAS)
- Lee Lockwood, 2011. "Code files for "Bequest Motives and the Annuity Puzzle"," Computer Codes 10-110, Review of Economic Dynamics.
When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:52:y:2013:i:1:p:65-76. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Dana Niculescu)
If references are entirely missing, you can add them using this form.