On a gap between rational annuitization price for producer and price for customer

Nikolai Dokuchaev

Papers from arXiv.org

Abstract: The paper studies pricing of insurance products focusing on the pricing of annuities under uncertainty. This pricing problem is crucial for financial decision making and was studied intensively, however, many open questions still remain. In particular, there is a so-called "annuity puzzle" related to certain inconsistency of existing financial theory with the empirical observations for the annuities market. The paper suggests a pricing method based on the risk minimization such that both producer and customer seek to minimize the mean square hedging error accepted as a measure of risk. This leads to two different versions of the pricing problem: the selection of the annuity price given the rate of regular payments, and the selection of the rate of payments given the annuity price. It appears that solutions of these two problems are different. This can contribute to explanation for the "annuity puzzle".

Date: 2018-09
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published in Journal of Revenue and Pricing Management 2019 V. 18, Issue 2, pp. 147-154

Downloads: (external link)
http://arxiv.org/pdf/1809.08960 Latest version (application/pdf)

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:arx:papers:1809.08960

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().