What is the value of the annuity market?

Steffensen, Mogens; Søe, Julie Bjørner

doi:10.1007/s10203-023-00411-3

Cited by 2 publications

(3 citation statements)

References 25 publications

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“…We emphasize that the value function and the optimal controls correspond to the results in, e.g., Merton (1969) and Kashif et al (2020) with µ t = 0 and µ * t = 0 for all t ≥ 0, as well as with Steffensen and Søe (2023).…”

Section: The Classical Strategysupporting

confidence: 53%

“…The structure is completely maintained when we introduce lifetime uncertainty. It can also be found in Steffensen and Søe (2023) with the mortality effect present. Therefore, we neither establish a verification proof nor derive the solution to the HJB equation.…”

Section: The Classical Strategymentioning

confidence: 86%

“…A different interesting case is where there is no utility from bequest but also no access to a life insurance market. The welfare loss from losing access to the insurance market is the main objective of Steffensen and Søe (2023) where there is no attention to smoothing, though.…”

Section: Numerical Setupmentioning

confidence: 99%

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On Smoothing and Habit Formation of Variable Life Annuity Benefits

Steffensen,

Vikkelsøe

2024

JRFM

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This paper studies optimal consumption and investment strategies with lifetime uncertainty to design a smooth pension product. In a simplified Black–Scholes market, we investigate three strategies for consumption and investment: the classical strategy, the habit strategy, and the hybrid strategy. Incorporating additive habit formation in preferences leads to a request for less consumption volatility. Studying the consumption dynamics, it turns out that the hybrid strategy complies with the same preferences as the habit strategy. In our design of a smooth pension product, we are highly inspired by the consumption structure under the hybrid strategy and let consumption be specified as a time-dependent weighted average of last year’s consumption level and a standard market rate life annuity. We give two approaches for the investment portfolio. The numerical examples show that consumption under these approaches is less volatile than consumption under the classical strategy.

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Section: The Classical Strategysupporting

confidence: 53%

Section: The Classical Strategymentioning

confidence: 86%