This paper studies the dependence between coupled lives - both within and across generations - and its effects on prices of reversionary annuities in the presence of longevity risk. Longevity risk is represented via a stochastic mortality intensity. Dependence is modelled through copula functions. We consider Archimedean single and multi-parameter copulas. We fi nd that dependence decreases when passing from older generations to younger generations. Not only the level of dependence but also its features - as measured by the copula - change across generations: the best-fi t Archimedean copula is not the same across generations. Moreover, for all the generations under exam the single-parameter copula is dominated by the two-parameter one. The independence assumption produces quantifi able mispricing of reversionary annuities. The misspeci cation of the copula produces different mispricing effects on different generations. The research is conducted using a well-known dataset of double life contracts.

Spouses’ dependence across generations and pricing impact on reversionary annuities

Luciano, Elisa;VIGNA, Elena;
2016

Abstract

This paper studies the dependence between coupled lives - both within and across generations - and its effects on prices of reversionary annuities in the presence of longevity risk. Longevity risk is represented via a stochastic mortality intensity. Dependence is modelled through copula functions. We consider Archimedean single and multi-parameter copulas. We fi nd that dependence decreases when passing from older generations to younger generations. Not only the level of dependence but also its features - as measured by the copula - change across generations: the best-fi t Archimedean copula is not the same across generations. Moreover, for all the generations under exam the single-parameter copula is dominated by the two-parameter one. The independence assumption produces quantifi able mispricing of reversionary annuities. The misspeci cation of the copula produces different mispricing effects on different generations. The research is conducted using a well-known dataset of double life contracts.
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http://www.mdpi.com/search?q=&authors=&article_type=&journal=risks§ion=&special_issue=3774&search=Search
Luciano, Elisa, Vigna, Elena, Spreew, Jaap,
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/2318/109067
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