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Key Findings Details

Mortality Contingent Claims: Impact of Capital Market, Income, and Interest Rate Risk
Wolfram J. Horneff and Raimond H. Maurer
WP 2009-222

  • We explore how an investor can accumulate wealth and manage her assets effectively to meet the consumption and bequest liabilities that arise during her lifetime using pension annuities and life insurance policies with guaranteed payouts.
  • We find a substantial impact of financial wealth with respect to the demand for life insurance policies, but we discover a considerably small influence of the short rate on the demand¬†for life insurance if we reasonably calibrate our asset and income model.
  • We find an analytical solution for the optimal demand for life insurance and pension annuities in the complete market case in which human capital is exactly priced, and derive numerical insight into a realistically calibrated case when uncertain income is unspanned.