| Popis: |
The global trend of population ageing and switching from defined benefit to defined contribution retirement scheme has prompted the increasing need for retirement income products. The traditional annuity products, however, have evidently low market penetration. Pooled annuity products, where the participants share both the systematic and idiosyncratic mortality risks, provide a more attractive and sustainable solution. This type of product design has gained support from scholars, some industry practitioners and the Australian government. In a typical design of pooled annuity products, such as the group self-annuitization, the participants not only share the mortality or longevity risks, but also the investment risks. While there has been much effort to understand the longevity risk sharing mechanism, little has been discussed on the investment risk aspect. However, the investment risks are not trivial . If the investment risks are unmanaged, the pooled annuity funds might lose its ability to provide retirement income protection to its participants. This is the area of literature that this thesis contributes to. A type of investment strategy, termed "managed volatility framework" in this thesis, takes advantage of the stylized facts of equity returns, such as volatility clustering and negative correlation between equity returns and conditional volatility, to predict and enhance returns in portfolios with risky assets. It has been shown that this strategy applies successfully in many cases. This thesis develops an investment strategy for pooled annuity funds to improve investment performance by incorporating risky assets, while protecting investment income from potential downside. It shows that the application of managed volatility framework is successful in improving risk-return profile compared to a fixed allocation strategy. The out-performance is observed for funds with different initial asset allocation and level of target volatility, which can be chosen based on the risk preference of the fund. The exposure to investment risk could also be lowered over the later period of the fund without significant impact on the annuity payment amounts. Finally, it shows that the more aggressive investment strategy reduces the initial number of participants required to attain a smooth and upward sloping payment pattern in the later stage of the fund. |
