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. Strategies in Sustainable Supply Chain Management
  2. Reconceptualizing Plural Sourcing
  3. Forest history as a base for dynamic naturalness
  4. Sustainable Conference Organizing: Practices and Impact
  5. Botar fé no axé
  6. Pervasive Intelligence
  7. Transdisziplinäre Nähe oder soziologische Distanz?
  8. What is governance in global telecoupling?
  9. Operation B
  10. Fostering pre-service teachers’ knowledge of ‘teaching games for understanding’ via video-based vs. text-based teaching examples
  11. The predictive value of individual and work-related resources for the health and work satisfaction of German school principals
  12. Effects of pesticides on community structure and ecosystem functions in agricultural streams of three biogeographical regions in Europe
  13. Current and New Research Perspectives on Dynamic Facial Emotion Detection in Emotional Interface
  14. Shallow
  15. Comparative effectiveness of three versions of a stepped care model for insomnia differing in the amount of therapist support in internet-delivered treatment
  16. Testing for Economies of Scope in European Railways
  17. A dynamic account of self-efficacy in entrepreneurship
  18. Repeat Receipts
  19. Mining User-Generated Financial Content to Predict Stock Price Movements
  20. Human-Value-Oriented Digital Social Innovation: A Multilevel Design Framework
  21. Entwicklung von Netzwerken
  22. Later Life Workplace Index: Validation of an English Version
  23. Nutzen – Nutzung - Nutzer_innen
  24. Scale Misfit in Ecosystem Service Governance as a Source of Environmental Conflict
  25. Social Bots as algorithmic pirates and messengers of techno-environmental agency
  26. Non-target Analysis and Chemometric Evaluation of a Passive Sampler Monitoring of Small Streams
  27. Biocultural approaches to pollinator conservation
  28. Scientists’ Responsibility for Global Futures
  29. Manager’s misinterpretation of goodwill impairments
  30. Coupled Modeling Approach for Laser Shock Peening of AA2198-T3
  31. The Toxicity of the Quaternary Ammonium Compound Benzalkonium Chloride Alone and in Mixtures with Other Anionic Compounds to Bacteria in Test Systems with Vibrio Fischeri and Pseudomonas Putida
  32. The impact of auditor rotation, audit firm rotation and non-audit services on earnings quality, audit quality and investor perceptions: A literature review
  33. Explorations in regional variation
  34. Media of Trust
  35. Das Reflexivitätsproblem und die Kategorienlehre
  36. myStudy
  37. Remaining time and opportunities at work: Relationships between age, work characteristics, and occupational future time perspective