Birgit Koos, 17.12.2009
Donnerstag, 17. Dezember, 15:00, Fakultätssitzungszimmer
Birgit Koos (University of Bonn)
Topic: A utility-based comparison of pension funds and life insurance
companies under regulatory constraints
(joint with Dirk Broeders
and An Chen)
Abstract:
This paper compares two different types of annuity providers, i.e. defined benefit pension funds and life insurance companies. One of the key differences is that the residual risk in pension funds is collectively borne by the beneficiaries and the sponsor's shareholders while in the case of life insurers, it is borne by the external shareholders. This paper employs a contingent claim approach to evaluate the risk return trade-off for annuitants. For that, we take into account the differences in contract specifications and in regulatory regimes. Mean-variance-skewness analysis is conducted to determine annuity choices of consumers. We find that contracts provided by the pension fund mostly lead to a higher expected utility of the terminal wealth. Finally, we calibrate the regulatory default probabilities such that the consumer is indifferent between a pension fund and an insurer. The consumer's risk aversion level appears to play a crucial rule in this.
