Tag: bonds
Abstract Using the Lee-Carter mortality model, we quantify aggregate mortality risk, the risk that annuitants might live longer than predicted by the model. We calculate that a markup of 4.3 percent on an annuity premium, or else shareholders’ capital equal to 4.3 percent of the expected present value of annuity payments, would reduce the probability…
Introduction The same issue keeps reappearing. How to deal with the risk associated with equity investments when evaluating the financial health of retirement systems? Some experts argue that retirement plans holding equities can make smaller funding contributions than those invested primarily in bonds. After all, stocks yield 7 percent, after inflation, and bonds only 3…