On a gap between rational annuitization price for producer and price for customer
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".
Code (0)
등록된 구현이 없습니다.
Tasks
Decision MakingSimilar Papers 제목 키워드 기반
A Tax-Subsidy Scheme for Efficient Investment in Renewable Generation Capacity
The impact of energy production significantly affects system sustainability, which has enabled a shift towards renewable energy sources. Thus, producer behavior is crucial in electricity markets to achieve sustainability…
An equilibrium model for spot and forward prices of commodities
We consider a market model that consists of financial investors and producers of a commodity. Producers optionally store some production for future sale and go short on forward contracts to hedge the uncertainty of the f…
A Statistical Equilibrium Approach to Adam Smith's Labor Theory of Value
Adam Smith's inquiry into the emergence and stability of the self-organization of the division of labor in commodity production and exchange is considered using statistical equilibrium methods from statistical physics. W…
The Limits of Price Discrimination Under Privacy Constraints
We study a producer's problem of selling a product to a continuum of privacy-conscious consumers, where the producer can implement third-degree price discrimination, offering different prices to different market segments…
Price formation and optimal trading in intraday electricity markets with a major player
We study price formation in intraday electricity markets in the presence of intermittent renewable generation. We consider the setting where a major producer may interact strategically with a large number of small produc…