RT Journal Article
SR Electronic
T1 Mortality Plateaus and the Pricing of Longevity Insurance
JF Special Issues
FD Institutional Investor Journals
SP 61
OP 69
VO 2014
IS 1
A1 Moshe A. Milevsky
YR 2014
UL https://pm-research.com/content/2014/1/61.abstract
AB The article examines the implications—concerning the pricing of longevity insurance and life annuities—of a “plateauing” in the instantaneous force of mortality (IFM) at advanced ages. Given the increasing popularity of Advanced Life Delayed Annuities (ALDAs, a.k.a. deferred income annuities) and today’s low interest-rate environment, the present-value cost of misestimating the dynamics of late-life mortality can be substantial. The article also offers comments about the possibility of using ALDA prices to imply market expectations of mortality dynamics and plateaus in a manner similar to implied volatility in the options market. This has obvious implications for annuity buy-outs, buy-ins, and other forms of longevity risk transfer, as well the most pressing retirement problem for individuals—how to make their money last for the remainder of their lives.