On the Optimal Combination of Annuities and Tontines
| Autor: | Manuel Rach, Thorsten Sehner, An Chen |
|---|---|
| Rok vydání: | 2019 |
| Předmět: |
Economics and Econometrics
050208 finance Actuarial science Longevity risk media_common.quotation_subject 05 social sciences Tontine Payment 01 natural sciences Product (business) 010104 statistics & probability Annuity (American) Accounting 0502 economics and business Economics Portfolio Optimal combination 0101 mathematics Finance Expected utility hypothesis media_common |
| Zdroj: | SSRN Electronic Journal. |
| ISSN: | 1556-5068 |
| DOI: | 10.2139/ssrn.3430546 |
| Popis: | Tontines, retirement products constructed in such a way that the longevity risk is shared in a pool of policyholders, have recently gained vast attention from researchers and practitioners. Typically, these products are cheaper than annuities, but do not provide stable payments to policyholders. This raises the question whether, from the policyholders' viewpoint, the advantages of annuities and tontines can be combined to form a retirement plan which is cheaper than an annuity, but provides a less volatile retirement income than a tontine. In this article, we analyze and compare three approaches of combining annuities and tontines in an expected utility framework: the previously introduced “tonuity”, a product very similar to the tonuity which we call “antine” and a portfolio consisting of an annuity and a tontine. We show that the payoffs of a tonuity and an antine can be replicated by a portfolio consisting of an annuity and a tontine. Consequently, policyholders achieve higher expected utility levels when choosing the portfolio over the novel retirement products tonuity and antine. Further, we derive conditions on the premium loadings of annuities and tontines indicating when the optimal portfolio is investing a positive amount in both annuity and tontine, and when the optimal portfolio turns out to be a pure annuity or a pure tontine. |
| Databáze: | OpenAIRE |
| Externí odkaz: |
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