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Application of Copulas to Modelling of Marriage Reverse Annuity Contract

Author

Listed:
  • Joanna Dębicka
  • Stanisław Heilpern
  • Agnieszka Marciniuk

Abstract

We model the probabilistic structure and cash flows arising from marriage reverse annuity contracts in the case of the joint-life status and the last surviving status. In contrast to the classical approach, we take into consideration that future lifetimes between spouses are dependent. The structure of dependence of the length of spouses' lives is modelled using copulas. The term structure of interest rate is modelled using a time-dependent function. The numerical results are based on actual Polish data covering both the structure of the probabilistic model and the interest rate.

Suggested Citation

  • Joanna Dębicka & Stanisław Heilpern & Agnieszka Marciniuk, 2020. "Application of Copulas to Modelling of Marriage Reverse Annuity Contract," Prague Economic Papers, Prague University of Economics and Business, vol. 2020(4), pages 445-468.
    • Handle: RePEc:prg:jnlpep:v:2020:y:2020:i:4:id:745:p:445-468
    DOI: 10.18267/j.pep.745
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    References listed on IDEAS

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    1. Wolthuis, H. & Van Hoek, I., 1986. "Stochastic models for life contingencies," Insurance: Mathematics and Economics, Elsevier, vol. 5(3), pages 217-254, July.
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    Cited by:

    1. Beata Zmyslona & Agnieszka Marciniuk, 2020. "Financial Protection for the Elderly - Contracts Based on Equity Release and Critical Health Insurance," European Research Studies Journal, European Research Studies Journal, vol. 0(Special 1), pages 867-882.

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    More about this item

    Keywords

    Longevity risk; dependent lifetimes; reverse annuity contract; selling model; multistate model; copula; equity release contracts;
    All these keywords.

    JEL classification:

    • C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
    • G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • J10 - Labor and Demographic Economics - - Demographic Economics - - - General

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