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Financial Innovation for an Aging World

Author

Listed:
  • Olivia S. Mitchell
  • John Piggott
  • Michael Sherris
  • Shaun Yow

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.

Suggested Citation

  • Olivia S. Mitchell & John Piggott & Michael Sherris & Shaun Yow, 2006. "Financial Innovation for an Aging World," NBER Working Papers 12444, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:12444
    Note: AG LS PE
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    References listed on IDEAS

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    5. 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.
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    8. Shiller, Robert J., 1999. "Social security and institutions for intergenerational, intragenerational, and international risk-sharing," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 50(1), pages 165-204, June.
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    Citations

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    Cited by:

    1. Hazel Bateman & Susan Thorp, 2008. "Choices and Constraints over Retirement Income Streams: Comparing Rules and Regulations," The Economic Record, The Economic Society of Australia, vol. 84(s1), pages 17-31, September.
    2. repec:pos:journl:31-2 is not listed on IDEAS
    3. Maria Chiuri & Tullio Jappelli, 2010. "Do the elderly reduce housing equity? An international comparison," Journal of Population Economics, Springer;European Society for Population Economics, vol. 23(2), pages 643-663, March.
    4. Nicolas R Blancher & François Haas & John Kiff & Oksana Khadarina & Paul S. Mills & Parmeshwar Ramlogan & William Lee & Yoon Sook Kim & Todd Groome & Shinobu Nakagawa, 2006. "The Limits of Market-Based Risk Transfer and Implications for Managing Systemic Risks," IMF Working Papers 06/217, International Monetary Fund.
    5. Piggott John R. & Sane Renuka, 2012. "Demographic Shift and Financial Markets in APEC: New Age Solutions to Age Old Challenges," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 6(1), pages 1-28, February.
    6. Ferro, Gustavo, 2008. "Un impulso al mercado de rentas vitalicias en España
      [Promoting the annuities market in Spain]
      ," MPRA Paper 20211, University Library of Munich, Germany, revised Jul 2008.
    7. Ferro, Gustavo, 2008. "On annuities: an overview of the issues," MPRA Paper 20209, University Library of Munich, Germany, revised Oct 2009.

    More about this item

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • 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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