Variable annuities and the option to seek risk: Why should you diversify?

Research output: Journal contributionsJournal articlesResearchpeer-review

Authors

We analyze the impacts of an additional rider incorporated in recent retirement products. The payoff is linked to the performance of a multi asset investment strategy and includes a minimum interest rate guarantee. In addition, the buyer receives the option to decide on the investments dynamically. Prominent examples are so called variable annuities. Due to the embedded guarantee, these products are interesting for risk averse investors who benefit from diversification. However, the price setting of the provider takes into account the most risky strategy. This implies that the investor mitigates optimally between the diversification and the worst case strategy. We analyze the distortion and utility effects caused by the additional rider in the presence of background risk and borrowing constraints. A simulation analysis sheds light on the question if the additional rider is worth its costs.

Original languageEnglish
JournalJournal of Banking and Finance
Volume36
Issue number9
Pages (from-to)2417-2428
Number of pages12
ISSN0378-4266
DOIs
Publication statusPublished - 01.09.2012
Externally publishedYes

    Research areas

  • Feasible contracts, Guaranteed accumulation benefits, Non-market wealth, Optimal portfolio choice, Utility losses
  • Management studies

Recently viewed

Publications

  1. The use of digital media in primary school PE – student perspectives on product-oriented ways of lesson staging
  2. Symbole unserer Zeit und ihre formierenden Elemente
  3. B7-H1 Selectively Controls TH17 Differentiation and Central Nervous System Autoimmunity via a Novel Non-PD-1-Mediated Pathway
  4. Cultural differences in planning-success relationships
  5. Competition response of European beech Fagus sylvatica L. varies with tree size and abiotic stress
  6. V/2. Ethisch
  7. Making professors
  8. Tailoring of residual stresses by specific use of defined prestress during laser shock peening
  9. Heterogenitätssensible Hochschullehre
  10. Editorial message
  11. Strategies in Sustainable Supply Chain Management
  12. Probing turbulent superstructures in Rayleigh-Bénard convection by Lagrangian trajectory clusters
  13. Daily deep acting toward coworkers
  14. How to specify the structure of substituted blade-like zigzag diamondoids
  15. Explaining energy transition
  16. Herbivore and pathogen effects on tree growth are additive, but mediated by tree diversity and plant traits
  17. Need for cognition, academic self-efficacy and parental education predict the intention to go to college – evidence from a multigroup study
  18. Seduced by the label
  19. Can not wanting to know be responsible?
  20. A colonial lack of imagination
  21. Inklusion – aber wie?
  22. Technology Development and Stakeholder Influence
  23. Progress and challenge for magnesium alloys as biomaterials
  24. Strategy execution in hospitals
  25. Carbon footprinting of large product portfolios. Extending the use of Enterprise Resource Planning systems to carbon information management
  26. The Integration of Wheelchair Users in Team Handball
  27. ‘Then you just have to perform better’
  28. An interpretive perspective on co-production in supporting refugee families’ access to childcare in Germany