Optimal gradual annuitization : quantifying the costs of switching to annuities

  • We compute the optimal dynamic asset allocation policy for a retiree with Epstein-Zin utility. The retiree can decide how much he consumes and how much he invests in stocks, bonds, and annuities. Pricing the annuities we account for asymmetric mortality beliefs and administration expenses. We show that the retiree does not purchase annuities only once but rather several times during retirement (gradual annuitization). We analyze the case in which the retiree is restricted to buy annuities only once and has to perform a (complete or partial) switching strategy. This restriction reduces both the utility and the demand for annuities.

Download full text files

Export metadata

Additional Services

Share in Twitter Search Google Scholar
Author:Wolfram J. Horneff, Raimond MaurerORCiDGND, Michael Stamos
Parent Title (English):Universität Frankfurt am Main. Fachbereich Wirtschaftswissenschaften: [Working paper series / Finance and accounting] Working paper series, Finance & Accounting ; No. 174
Series (Serial Number):Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting (174)
Publisher:Univ., Fachbereich Wirtschaftswiss.
Place of publication:Frankfurt am Main
Document Type:Working Paper
Year of Completion:2007
Year of first Publication:2007
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2007/04/21
Tag:annuities; dynamic asset allocation; insurance; pensions; portfolio choice; retirement; retirement policies
GND Keyword:Rentner; Asset-Backed Security; Portfoliomanagement
Page Number:25
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht