RISK ANALYSIS OF ANNUITY CONVERSION OPTIONS IN A STOCHASTIC MORTALITY ENVIRONMENT

Alexander Kling, Jochen Ruß and Katja Schilling

ASTIN Bulletin, 2014, vol. 44, issue 2, 197-236

Abstract: While extensive literature exists on the valuation and risk management of financial guarantees embedded in insurance contracts, both the corresponding longevity guarantees and interactions between financial and longevity guarantees are often ignored. The present paper provides a framework for a joint analysis of financial and longevity guarantees, and applies this framework to different annuity conversion options in deferred unit-linked annuities. In particular, we analyze and compare different versions of so-called guaranteed annuity options and guaranteed minimum income benefits with respect to the value of the option and the resulting risk for the insurer. Furthermore, we examine whether and to what extent an insurance company is able to reduce the risk by typical risk management strategies. The analysis is based on a combined stochastic model for both financial market and future survival probabilities. We show that different annuity conversion options have significantly different option values, and that different risk management strategies lead to a significantly different risk for the insurance company.

Date: 2014
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:astinb:v:44:y:2014:i:02:p:197-236_00

Access Statistics for this article

More articles in ASTIN Bulletin from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().