Unit-Linked Tontine: Utility-Based Design, Pricing and Performance

An Chen, Thai Nguyen and Thorsten Sehner
Additional contact information
An Chen: Institute of Insurance Science, University of Ulm, Helmholtzstrasse 20, 89069 Ulm, Germany
Thai Nguyen: École d’Actuariat, Université Laval, 2425, rue de l’Agriculture, Quebec, QC G1V 0A6, Canada
Thorsten Sehner: Institute of Insurance Science, University of Ulm, Helmholtzstrasse 20, 89069 Ulm, Germany

Risks, 2022, vol. 10, issue 4, 1-27

Abstract: Due to the low demand for conventional annuities, alternative retirement products are sought. Quite recently, tontines have been frequently brought up as a promising option in this respect. Inspired by unit-linked life insurance and retirement products, we introduce unit-linked tontines in this article, where the tontine payoffs are directly linked to the development of the underlying financial market. More specifically, we consider two different tontine payoff structures differing in the (non-)inclusion of guaranteed payments. We first price the unit-linked tontines by using the risk-neutral pricing approach. Consequently, we study the attractiveness of these products for a utility-maximizing policyholder and compare them with non-unit-linked tontines. Our numerical analysis sheds light on the design challenges and gives explanations why similar products might not be widely adopted already.

Keywords: unit-linked tontine; product design; risk neutral pricing; utility optimization; utility performance (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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