This paper describes how differences in health status at retirement can influence the decision to purchase a life annuity. We extend previous research on annuitization decisions by incorporating the effect of health differentials via differences in survival throughout the latter portion of life. Next, we consider how precautionary savings motivated by uncertain out-of-pocket medical expenses in...

Abstract Actuarial fairness pertains to the situation in which price of an insurance contract is equal its expected outcome. We show that actuarial leads “unfairness” annuitants with higher survival rates can choose a better payoff sense second-order stochastic dominance than those lower rates. To deal this issue, we propose utility pricing, i.e., determine prices such all contracts have same (...

Abstract The “annuity puzzle” refers to the fact that annuities are rarely purchased despite longevity insurance they provide. Most explanations for this puzzle assume individuals have accurate expectations about their future survival. We provide evidence misperceive mortality risk and study demand in a setting where priced by insurers on basis of objectively-measured survival probabilities but...

Although consumer financial decision making has attracted renewed attention from marketing researchers, issues of consumer decumulation of retirement wealth have remained relatively unexplored. Research on decumulation presents an interesting problem for both behavioral and quantitative marketing researchers; it is a choice problem with large stakes, multiple sources of uncertainty, and difficu...

Variable annuities have grown tremendously in recent years, offering life insurers significant growth opportunities. These equity and interest rate structured products offer a broad range of guarantees to the policyholders, and insurers must manage their risks. The insurer’s risk management program must consider modeling and implementation challenges beyond that of the standard capital market a...

Let (Et, t ≥ 0) be a geometric Brownian motion. In this paper, we compute the law of a generalization of Dufresne’s translated perpetuity (following the terminology of Salminen-Yor) : ∫ +∞ 0 E s (E2 s + 2aEs + b)2 ds, and show that, in some cases, this perpetuity is identical in law with the first hitting time of a threedimensional Bessel process with drift. We also study the law of the followi...