500 Years of Annuity Mispricing
Prima facie, valuing a longevity-contingent claim that provides guaranteedincome-for-life should be a relatively straightforward operation. One selectsa mortality basis with a proper discount curve and the remainder is left toexpectations. And yet, history is strewn with examples of mispriced annuities.From early attempts by the English King Henry VIII to securitize cashflowsfrom the dissolution of the monasteries in the 16th century, to Europeantontines in the 17th and 18th c enturies and of course North American variableannuity companies who teetered on the precipice of bankruptcy in the early21st century, it seems annuities can be a very tricky business. Motivatedby these examples and recent controversies, in this talk Schulich School ofBusiness Professor Moshe Milevsky will review the pricing of plain, compoundand decorative annuities, and the economic rationale for their existence,concluding with observations on why Mother Nature would prefer that retireespool longevity risk.
Moshe A. Milevsky, Professor of Finance, Schulich School of Business, York University
2:00 - 3:00 p.m.