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Long Dated Life Insurance and Pension Contracts

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  • Aase, Knut K.

    (Dept. of Finance and Management Science, Norwegian School of Economics and Business Administration)

Abstract

We discuss the "life cycle model" by first introducing a credit market with only biometric risk, and then market risk is introduced via risky securities. This framework enables us to find optimal pension plans and life insurance contracts where the benefits are state dependent. We compare these solutions both to the ones of standard actuarial theory, and to policies offered in practice. Two related portfolio choice puzzles are discussed in the light of recent research, one is the horizon problem, the other is related to the aggregate market data of the last century, where theory and practice diverge. Finally we present some comments on longevity risk and cohort risk.

Suggested Citation

  • Aase, Knut K., 2011. "Long Dated Life Insurance and Pension Contracts," Discussion Papers 2011/10, Norwegian School of Economics, Department of Business and Management Science.
    • Handle: RePEc:hhs:nhhfms:2011_010
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    File URL: http://hdl.handle.net/11250/164026
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    References listed on IDEAS

    as
    1. Paul A. Samuelson, 2011. "Lifetime Portfolio Selection by Dynamic Stochastic Programming," World Scientific Book Chapters, in: Leonard C MacLean & Edward O Thorp & William T Ziemba (ed.), THE KELLY CAPITAL GROWTH INVESTMENT CRITERION THEORY and PRACTICE, chapter 31, pages 465-472, World Scientific Publishing Co. Pte. Ltd..
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    More about this item

    Keywords

    The life cycle model; pension insurance; optimal life insurance; longevity risk; the horizon problem; equity premium puzzle;
    All these keywords.

    JEL classification:

    • G00 - Financial Economics - - General - - - General

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