Affordable and adequate annuities with stable payouts

Fantasy or reality?

Servaas van Bilsen, Daniel Hemant Linders

Research output: Contribution to journalArticle

Abstract

This paper introduces a class of unit-linked annuities that extends existing annuities by allowing portfolio shocks to be gradually absorbed into the annuity payouts. Consequently, our new class enables insurers to offer an affordable and adequate annuity with a stable payout stream. We show how to price and adequately hedge the annuity payouts in a general financial environment. In particular, our model accounts for various stylized facts of stock returns such as asymmetry and heavy-tailedness. Furthermore, the generality of our framework makes it possible to explore the impact of a parameter misspecification on the annuity price and the hedging performance.

Original languageEnglish (US)
Pages (from-to)19-42
Number of pages24
JournalInsurance: Mathematics and Economics
Volume86
DOIs
StatePublished - May 1 2019

Fingerprint

Stylized Facts
Stock Returns
Misspecification
Hedging
Asymmetry
Shock
Unit
Class
Annuities
Fantasy
Model
Framework

Keywords

  • Buffering of portfolio shocks
  • General financial market
  • Model risk
  • Risk management framework
  • Unit-linked annuities

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this

Affordable and adequate annuities with stable payouts : Fantasy or reality? / van Bilsen, Servaas; Linders, Daniel Hemant.

In: Insurance: Mathematics and Economics, Vol. 86, 01.05.2019, p. 19-42.

Research output: Contribution to journalArticle

@article{47212beaafee436c9075d1f0365e5666,
title = "Affordable and adequate annuities with stable payouts: Fantasy or reality?",
abstract = "This paper introduces a class of unit-linked annuities that extends existing annuities by allowing portfolio shocks to be gradually absorbed into the annuity payouts. Consequently, our new class enables insurers to offer an affordable and adequate annuity with a stable payout stream. We show how to price and adequately hedge the annuity payouts in a general financial environment. In particular, our model accounts for various stylized facts of stock returns such as asymmetry and heavy-tailedness. Furthermore, the generality of our framework makes it possible to explore the impact of a parameter misspecification on the annuity price and the hedging performance.",
keywords = "Buffering of portfolio shocks, General financial market, Model risk, Risk management framework, Unit-linked annuities",
author = "{van Bilsen}, Servaas and Linders, {Daniel Hemant}",
year = "2019",
month = "5",
day = "1",
doi = "10.1016/j.insmatheco.2019.01.010",
language = "English (US)",
volume = "86",
pages = "19--42",
journal = "Insurance: Mathematics and Economics",
issn = "0167-6687",
publisher = "Elsevier",

}

TY - JOUR

T1 - Affordable and adequate annuities with stable payouts

T2 - Fantasy or reality?

AU - van Bilsen, Servaas

AU - Linders, Daniel Hemant

PY - 2019/5/1

Y1 - 2019/5/1

N2 - This paper introduces a class of unit-linked annuities that extends existing annuities by allowing portfolio shocks to be gradually absorbed into the annuity payouts. Consequently, our new class enables insurers to offer an affordable and adequate annuity with a stable payout stream. We show how to price and adequately hedge the annuity payouts in a general financial environment. In particular, our model accounts for various stylized facts of stock returns such as asymmetry and heavy-tailedness. Furthermore, the generality of our framework makes it possible to explore the impact of a parameter misspecification on the annuity price and the hedging performance.

AB - This paper introduces a class of unit-linked annuities that extends existing annuities by allowing portfolio shocks to be gradually absorbed into the annuity payouts. Consequently, our new class enables insurers to offer an affordable and adequate annuity with a stable payout stream. We show how to price and adequately hedge the annuity payouts in a general financial environment. In particular, our model accounts for various stylized facts of stock returns such as asymmetry and heavy-tailedness. Furthermore, the generality of our framework makes it possible to explore the impact of a parameter misspecification on the annuity price and the hedging performance.

KW - Buffering of portfolio shocks

KW - General financial market

KW - Model risk

KW - Risk management framework

KW - Unit-linked annuities

UR - http://www.scopus.com/inward/record.url?scp=85061629334&partnerID=8YFLogxK

UR - http://www.scopus.com/inward/citedby.url?scp=85061629334&partnerID=8YFLogxK

U2 - 10.1016/j.insmatheco.2019.01.010

DO - 10.1016/j.insmatheco.2019.01.010

M3 - Article

VL - 86

SP - 19

EP - 42

JO - Insurance: Mathematics and Economics

JF - Insurance: Mathematics and Economics

SN - 0167-6687

ER -