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    A gap between rational annuitization price for producer and price for customer

    272042.pdf (216.9Kb)
    Access Status
    Open access
    Authors
    Dokuchaev, Nikolai
    Date
    2018
    Type
    Journal Article
    
    Metadata
    Show full item record
    Citation
    Dokuchaev, N. 2018. A gap between rational annuitization price for producer and price for customer. Journal of Revenue and Pricing Management. 18 (2): pp. 147–154.
    Source Title
    Journal of Revenue and Pricing Management
    DOI
    10.1057/s41272-018-00163-5
    ISSN
    1476-6930
    School
    School of Electrical Engineering, Computing and Mathematical Science (EECMS)
    Remarks

    The final publication is available at Springer via http://dx.doi.org/10.1057/s41272-018-00163-5

    URI
    http://hdl.handle.net/20.500.11937/73047
    Collection
    • Curtin Research Publications
    Abstract

    The paper studies pricing of insurance products focusing on the pricing of annuities under uncertainty. This pricing problem is crucial for financial decision making and was studied intensively; however, many open questions still remain. In particular, there is a so-called ``annuity puzzle" related to certain inconsistency of existing financial theory with the empirical observations for the annuities market. The paper suggests a pricing method based on the risk minimization such that both producer and customer seek to minimize the mean square hedging error accepted as a measure of risk. This leads to two different versions of the pricing problem: the selection of the annuity price given the rate of regular payments, and the selection of the rate of payments given the annuity price. It appears that solutions of these two problems are different. This can contribute to explanation for the "annuity puzzle".

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