Portfolio choice and longevity risk in the late seventeenth century: a re-examination of the first English tontine

Tontines and life annuities both insure against longevity risk by guaranteeing (pension) income for life. The optimal choice between these two mortality-contingent claims depends on personal preferences for consumption and risk. And, while pure tontines are unavailable in the twenty-first century, the first longevity-contingent claim (and debt) issued by the English government in the late seventeenth century offered a choice between the two. This article analyzes financial and economic aspects of King William's 1693 tontine that have not received attention in the literature. In particular, it compares the stochastic present value (SPV) of the tontine vs the life annuity and discusses characteristics of investors who selected one versus the other. Finally, the article examines the issue of whether high reported tontine survival rates should be attributed to anti-selection or fraud. In sum, this article is an empirical examination of annuitization decisions made by actual investors in the late seventeenth century.