A stochastic programming model for funding single premium deferred annuities. (English) Zbl 0874.90149

Summary: Single Premium Deferred Annuities (SPDAS) are investment vehicles, offered to investors by insurance companies as a means of providing income past their retirement age. They are mirror images of insurance policies. However, the propensity of individuals to shift part, or all, of their investment into different annuities creates substantial uncertainties for the insurance company. In this paper we develop a multiperiod, dynamic stochastic program that deals with the problem of funding SPDA liabilities. The model recognizes explicitly the uncertainties inherent in this problem due to both interest rate volatility and the behavior of individual investors. Empirical results are presented with the use of the model for the funding of an SPDA liability stream using government bonds, mortgage-backed securities and derivative products.


90C15 Stochastic programming
90C90 Applications of mathematical programming


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