De Angelis, T and Stabile, G (2019) On the free Boundary of an Annuity Purchase. Finance and Stochastics, 23 (1). pp. 97-137. ISSN 1432-1122
Abstract
It is known that the decision to purchase an annuity may be associated to an optimal stopping problem. However, little is known about optimal strategies if the mortality force is a generic function of time and the subjective life expectancy of the investor differs from the objective one adopted by insurance companies to price annuities. In this paper, we address this problem by considering an individual who invests in a fund and has the option to convert the fund’s value into an annuity at any time. We formulate the problem as a real option and perform a detailed probabilistic study of the optimal stopping boundary. Due to the generic time-dependence of the mortality force, our optimal stopping problem requires new solution methods to deal with nonmonotonic optimal boundaries.
Metadata
Item Type: | Article |
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Authors/Creators: |
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Copyright, Publisher and Additional Information: | © The Author(s) 2018. This article is distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution, and reproduction in any medium, provided you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license, and indicate if changes were made. |
Keywords: | Annuities, Mortality force, Optimal stopping, Free boundary problems |
Dates: |
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Institution: | The University of Leeds |
Academic Units: | The University of Leeds > Faculty of Engineering & Physical Sciences (Leeds) > School of Mathematics (Leeds) > Statistics (Leeds) |
Depositing User: | Symplectic Publications |
Date Deposited: | 17 Oct 2018 10:56 |
Last Modified: | 25 Jun 2023 21:32 |
Status: | Published |
Publisher: | Springer Verlag |
Identification Number: | 10.1007/s00780-018-00379-8 |
Open Archives Initiative ID (OAI ID): | oai:eprints.whiterose.ac.uk:137242 |
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