TY - JOUR
T1 - Affordable and adequate annuities with stable payouts
T2 - Fantasy or reality?
AU - van Bilsen, Servaas
AU - Linders, Daniël
N1 - Funding Information:
We are very grateful to Lans Bovenberg, Jan Dhaene, Roger Laeven, Hans Schumacher, Michel Vellekoop and to conference and seminar participants at Georgia State University, KU Leuven, Renmin University of China, University of Amsterdam, University of Illinois, University of Seville, and the University of Waterloo for their helpful comments and suggestions. This research was supported in part by the TIAA-CREF Institute (ID#00464942).
Publisher Copyright:
© 2019 Elsevier B.V.
PY - 2019/5
Y1 - 2019/5
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
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U2 - 10.1016/j.insmatheco.2019.01.010
DO - 10.1016/j.insmatheco.2019.01.010
M3 - Article
AN - SCOPUS:85061629334
SN - 0167-6687
VL - 86
SP - 19
EP - 42
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
ER -