In enhanced annuities, the annuity payment depends on one’s state of health at some contracted date while in ”standard annuities”, it does not. The focus of this paper is on an annuity market where ”standard” and enhanced annuities are offered simultaneously. When all insured know equally well on their future health status either enhanced annuities drive standard annuities out of the market or ...

This paper proposes a computationally efficient algorithm for quantifying the impact of interest-rate risk and longevity risk on the distribution of annuity values in the distant future. The algorithm simulates the state variables out to the end of the horizon period and then uses a Taylor series approximation to compute approximate annuity values at the end of that period, thereby avoiding a c...

Why do most individuals claim Social Security benefits before the full retirement age? Claiming early results in a substantial reduction pension income, yet many people as possible (age 62) or soon thereafter. We argue that by answering this question, we can make two additional contributions to literature. First, claiming is equivalent low demand for annuity, thus it offers unique context study...

In many developed countries the standard annuity mortgage is increasingly being supplanted by mortgages with nonstandard features, such as longer terms or interest-only payments. Many of these new features aim to reduce the borrower’s monthly debt service in the initial period of the loan. This reflects both borrower demand (as house-price rises have led to affordability problems) and regulator...

This article examines the distributional implications of mandatory longevity insurance when mortality heterogeneity exists in the population. Previous research has demonstrated the significant financial redistribution that occurs under alternative annuity programs in the presence of differential mortality across groups. This article embeds that analysis into a life-cycle framework that allows f...

This paper uses unique micro data from a Swedish occupational pension plan to study the determinants of annuitization. The data is merged with national administrative data to create a large data set with rich individual background characteristics. The pension can either be withdrawn as a life annuity or during a fixed number of years with a minimum of five years. Low accumulation of assets is s...

The paper discusses the use of a generalized version of the equivalent annuity principle, which takes into account interest rate #uctuations over time. When dealing with applications over a sequence of cycles, e.g. plant replacement ones, the equivalent annuity is usually de"ned with reference to each single cycle or to the whole sequence. First, we study the correspondence between net present ...

We analyze the influence of rate regulation on insurance demand in an annuity setting. With a unique dataset containing a natural experiment due to German federal regulation and the E.U. Gender Directive we study the impact of such rate regulation on contract choices in variable annuity products. Our data contains two different choice variables with antithetic predictions for men and women, mea...

Convexity correction arises when one computes the expected value of an interest rate index under a probability measure other than its own natural martingale measure. As a typical example, the natural martingale measure of the swap rate is the swap measure with annuity as the numeraire. However, the evaluation of the discounted expectation of the payoff in a constant maturity swap (CMS) derivati...

other factors, such as counterparty risk and inflation risk which come into play. The major factor, however, is likely to be liquidity risk, namely the need of households to come up with, what for them is, a large amount of money over a short period of time in order to deal with health and other emergencies. This is where the annuity options (refundable annuities) that Sheshinski recommends can...