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Annuities, Bequests, and Portfolio Diversification
Author(s) -
D'ALBIS HIPPOLYTE,
THIBAULT EMMANUEL
Publication year - 2010
Publication title -
journal of public economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.809
H-Index - 32
eISSN - 1467-9779
pISSN - 1097-3923
DOI - 10.1111/j.1467-9779.2009.01448.x
Subject(s) - bequest , diversification (marketing strategy) , economics , portfolio , bond , actuarial science , decision maker , microeconomics , interest rate , financial economics , monetary economics , business , finance , marketing , management science , political science , law
In this article, the diversification motives of the demand for annuities is analyzed. Using a model allowing for the uncertainty of both the human life length and the interest rate, the Decision Maker is supposed to choose an optimal portfolio to maximize a bequest. Conditions under which an increase in the risk of bond returns increase the demand for annuities are proposed and discussed. Moreover, it is shown that, contrary to previous claims, more risk adversion is associated with a lower demand for annuities.