Aggregate Mortality Risk and the Insurance Value of Annuities

Juha Alho and Niku Määttänen

No 1005, Discussion Papers from The Research Institute of the Finnish Economy

Abstract: Future improvements in mortality are difficult to forecast. In this paper, we incorporate uncertainty about future mortality, or aggregate mortality risk, into an otherwise standard life cycle model with an intertemporal consumption-savings decision. The aggregate mortality process is calibrated based on European mortality series. We use the model to quantify the welfare cost of aggregate mortality risk and the extent to which individuals can insure themselves against it using life annuities with a constant payout stream.

Keywords: annuities; aggregate mortality risk (search for similar items in EconPapers)
JEL-codes: D14 G22 (search for similar items in EconPapers)
Pages: 15 pages
Date: 2006
New Economics Papers: this item is included in nep-dge, nep-fin and nep-ias
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