TY - JOUR
T1 - Pricing participating longevity-linked life annuities
T2 - a Bayesian Model Ensemble approach
AU - Bravo, Jorge Miguel
N1 - info:eu-repo/grantAgreement/FCT/6817 - DCRRNI ID/UIDB%2F04152%2F2020/PT#
Bravo, J. M. (2022). Pricing participating longevity-linked life annuities: a Bayesian Model Ensemble approach. European Actuarial Journal, 12(1), 125-159. https://doi.org/10.1007/s13385-021-00279-w ------ The author would like to express his gratitude to the editor and to two anonymous referees for his or her careful review and insightful comments, that helped strengthen the quality of the
paper. We thank also the suggestions and remarks from participants at the CAPSI 2020 Conference, Porto. The author was supported by Portuguese national science funds through FCT under the project UIDB/04152/2020-Centro de Investigação em Gestão de Informação (MagIC).
PY - 2022/6/1
Y1 - 2022/6/1
N2 - Participating longevity-linked life annuities (PLLA) in which benefits are updated periodically based on the observed survival experience of a given underlying population and the performance of the investment portfolio are an alternative insurance product offering consumers individual longevity risk protection and the chance to profit from the upside potential of financial market developments. This paper builds on previous research on the design and pricing of PLLAs by considering a Bayesian Model Ensemble of single population generalised age-period-cohort stochastic mortality models in which individual forecasts are weighted by their posterior model probabilities. For the valuation, we adopt a longevity option decomposition approach with risk-neutral simulation and investigate the sensitivity of results to changes in the asset allocation by considering a more aggressive lifecycle strategy. We calibrate models using Taiwanese (mortality, yield curve and stock market) data from 1980 to 2019. The empirical results provide significant valuation and policy insights for the provision of a cost effective and efficient risk pooling mechanism that addresses the individual uncertainty of death, while providing appropriate retirement income and longevity protection.
AB - Participating longevity-linked life annuities (PLLA) in which benefits are updated periodically based on the observed survival experience of a given underlying population and the performance of the investment portfolio are an alternative insurance product offering consumers individual longevity risk protection and the chance to profit from the upside potential of financial market developments. This paper builds on previous research on the design and pricing of PLLAs by considering a Bayesian Model Ensemble of single population generalised age-period-cohort stochastic mortality models in which individual forecasts are weighted by their posterior model probabilities. For the valuation, we adopt a longevity option decomposition approach with risk-neutral simulation and investigate the sensitivity of results to changes in the asset allocation by considering a more aggressive lifecycle strategy. We calibrate models using Taiwanese (mortality, yield curve and stock market) data from 1980 to 2019. The empirical results provide significant valuation and policy insights for the provision of a cost effective and efficient risk pooling mechanism that addresses the individual uncertainty of death, while providing appropriate retirement income and longevity protection.
KW - Bayesian Model Ensemble
KW - Longevity options
KW - Longevity-linked life annuities
KW - Pensions
KW - Stochastic mortality models
UR - http://www.scopus.com/inward/record.url?scp=85105943985&partnerID=8YFLogxK
UR - https://www.webofscience.com/wos/woscc/full-record/WOS:000650094300001
U2 - 10.1007/s13385-021-00279-w
DO - 10.1007/s13385-021-00279-w
M3 - Article
AN - SCOPUS:85105943985
SN - 2190-9733
VL - 12
SP - 125
EP - 159
JO - European Actuarial Journal
JF - European Actuarial Journal
IS - 1
ER -