16,498 research outputs found
Recommended from our members
A linear algebraic method for pricing temporary life annuities and insurance policies
We recast the valuation of annuities and life insurance contracts under mortality and interest rates, both of which are stochastic, as a problem of solving a system of linear equations with random perturbations. A sequence of uniform approximations is developed which allows for fast and accurate computation of expected values. Our reformulation of the valuation problem provides a general framework which can be employed to find insurance premiums and annuity values covering a wide class of stochastic models for mortality and interest rate processes. The proposed approach provides a computationally efficient alternative to Monte Carlo based valuation in pricing mortality-linked contingent claims
Recommended from our members
Can âcompulsoryâ annuities provide a fair pension?
This discussion paper finds that since 2002 compulsory annuities no longer provide an
actuarially fair pension. Hence annuities are a poor investment giving returns of less
than 85% in present value terms.
The paper uses a data base of annuity rates collected from MoneyFacts monthly
reports since 1994. This includes all products available on the market for Male Only
aged 55 to 75 in 5 year increments. The present value of future annuity streams and
their resultant moneys worth values (MW) are calculated and analysed, with particular
attention to the actuarial aspects. The approach and results are independently
confirmed giving a high degree of confidence in the findings. The analysis progresses
on from the literature review of recent published work
The paper plots historic trends of annuity payout rates and their MW values and
highlights some significant characteristics of the annuity market. While annuity rates
can be expected to fall as life expectation rises no logical reason can be found to also
justify the recent and significant reduction in their MW value below the actuarially
fair value of 1.0.
This research provides a valuable insight for developing strategies to guide the
pensioner when formulating his income drawdown plans, especially in the light of.
recent A-day changes
Efficient versus inefficient hedging strategies in the presence of financial and longevity (value at) risk
This paper provides a closed-form Value-at-Risk (VaR) for the net exposure of an annuity provider, taking into account both mortality and interest-rate risk, on both assets and liabilities. It builds a classical risk-return
frontier and shows that hedging strategies - such as the transfer of longevity risk - may increase the overall risk while decreasing expected returns, thus resulting in inefficient outcomes. Once calibrated to the 2010
UK longevity and bond market, the model gives conditions under which hedging policies become inefficient
Mortality-Indexed Annuities
Longevity risk has become a major challenge for governments, individuals, and annuity providers in most countries, and especially its aggregate form, i.e. the risk of unsystematic changes to general mortality patterns, bears a large potential for accumulative losses for insurers. As obvious risk management tools such as (re)insurance or hedging are less suited to manage an annuity providerâs exposure to aggregate longevity risk, the current paper proposes a new type of life annuities with benefits contingent on actual mortality experience, and it also details actuarial aspects of implementation. Similar adaptations to conventional product design exist in investment-linked annuities, and a role model for long-term contracts contingent on actual cost experience is found in German private health insurance so that the idea is not novel in general, but it is in the context of longevity risk.
By not or re-transferring the systematic longevity risk insurers may avoid accumulative losses so that the primary focus in an extensive Monte-Carlo simulation is on the question of whether and to what extent such products are also advantageous for policyholders in contrast to a comparable conventional annuity product
Multi fingered robot hand in industrial robot application using tele-operation
This research focuses on the working and development of wireless robotic hand system.
In this research previously developed models have been studied. After analysis of those
models, a better approach has been presented in this research. The objective of this
research is to design and develop a tele-operated robotic hand system. The robotic hand
is intended for providing solutions to industrial problems like robot reprogramming,
industrial automation and safety of the workers working in hostile environments. The
robotic hand system works in the master slave configuration where Bluetooth is being
used as the communication channel for the tele-operation. The master is a glove,
embedded with sensors to detect the movement of every joint present in the hand, which
a human operator can wear. This joint movement is transferred to the slave robotic hand
which will mimic the movement of human operator. The robotic hand is a multi
fingered dexterous and anthropomorphic hand. All the fingers are capable of performing
flexion, extension, abduction, adduction and hence circumduction. A new combination
of pneumatic muscles and springs has been used for the actuation purpose. As a result,
this combination reduces the size of the robotic hand by decreasing the number of
pneumatic muscles used. The pneumatic muscles are controlled by the opening and
closing of solenoid valves. A novel technique has been used in the robotic hand for
tendon routing, which gives the ability of independence to all finger joints. The heart of
all the control mechanism of the system is mbed microcontroller. The designed system
was tested at different module levels. The results show the successful establishment of
communication between master and slave at a rate of 10 packets per second, which was
sufficient for smooth motion of the system. The amount of torque produced at all the
joints in the robotic hand has been presented in this research. The posture tests have
been performed in which two fingers were actuated which followed the master. This
system has achieved motion of fingers without any tendon coupling problem. The
system is able to replace the human industrial workers performing dexterous tasks
Variable Annuity with GMWB: surrender or not, that is the question
Under the optimal withdrawal strategy of a policyholder, the pricing of
variable annuities with Guaranteed Minimum Withdrawal Benefit (GMWB) is an
optimal stochastic control problem. The surrender feature available in marketed
products allows termination of the contract before maturity, making it also an
optimal stopping problem. Although the surrender feature is quite common in
variable annuity contracts, there appears to be no published analysis and
results for this feature in GMWB under optimal policyholder behaviour - results
found in the literature so far are consistent with the absence of such a
feature. Also, it is of practical interest to see how the much simpler
bang-bang strategy, although not optimal for GMWB, compares with optimal GMWB
strategy with surrender option.
In this paper we extend our recently developed algorithm (Luo and Shevchenko
2015a) to include surrender option in GMWB and compare prices under different
policyholder strategies: optimal, static and bang-bang. Results indicate that
following a simple but sub-optimal bang-bang strategy does not lead to
significant reduction in the price or equivalently in the fee, in comparison
with the optimal strategy. We observed that the extra value added by the
surrender option could add very significant value to the GMWB contract. We also
performed calculations for static withdrawal with surrender option, which is
the same as bang-bang minus the "no-withdrawal" choice. We find that the fee
for such contract is only less than 1% smaller when compared to the case of
bang-bang strategy, meaning that th "no-withdrawal" option adds little value to
the contract.Comment: arXiv admin note: substantial text overlap with arXiv:1410.860
Individual Risk in an Investment-Based Social Security System
This paper examines the risk aspects of an investment-based defined contribution Social Security plan. We focus on the risk after the plan is fully phased in. Individuals deposit a fraction of wages to a Personal Retirement Account (PRA), invest these funds in a 60:40 equity-debt mix, and in a similarly invested annuity at age 67. The value of the assets follows a random walk with mean and variance of a 60:40 equity-debt portfolio over the period 1946-95, a mean log return of 5.5 percent (net of administrative costs of 0.4 percent) and a standard deviation of 12.5 percent. We study he stochastic distributions of this process by doing 10,000 simulations of the 80-year experience of the cohort that reached age 21 in 1998. The resulting annuities are compared to the future defined benefits specified in current law (the benchmark' benefits). With no uncertainty, a 5.5 percent log return would permit the benchmark benefits to be purchased with PRA deposits of 3.1 percent of payroll, only one-sixth of the pay-as-you-go tax needed for the benchmark benefits. Saving a higher share of wages provides a cushion' that protects the individual from the risk of an unacceptably low level of benefits. For example, PRA deposits of 6 percent of wages reduces the probability that the benefits are less than the benchmark to 0.17 and the probability that they are less than 61 percent of the benchmark to 0.05. PRA deposits of 9 percent of wages (half of the tax rate required in a pay-as-you-go system) would substantially reduce these risks. This pure investment-based plan is an extreme case. The investment risk can be reduced further by using a mixed system that combines pay-as-you-go and investment-based components or that makes intergenerational transfers conditional on the performance of stock and bond prices.
- âŠ