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Trading death: the implications of annuity replication for the annuity puzzle, arbitrage, speculation and portfolios

Sutcliffe, C. (2015) Trading death: the implications of annuity replication for the annuity puzzle, arbitrage, speculation and portfolios. International Review of Financial Analysis, 38. pp. 163-174. ISSN 1057-5219

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To link to this item DOI: 10.1016/j.irfa.2014.10.010

Abstract/Summary

Annuities are perceived as being illiquid financial instruments, and this has limited their attractiveness to consumers and their inclusion in financial models. However, short positions in annuities can be replicated using life insurance and debt, permitting long positions in annuities to be offset, or short annuity positions to be created. The implications of this result for the annuity puzzle, arbitrage between the annuity and life insurance markets, and speculation on expected longevity are investigated. It is argued that annuity replication could help reduce the annuity puzzle, improve the price efficiency of annuity markets and promote the inclusion of annuities in household portfolios.

Item Type:Article
Refereed:Yes
Divisions:Henley Business School > ICMA Centre
ID Code:37958
Uncontrolled Keywords:Annuities, annuity puzzle, arbitrage, speculation, life insurance
Publisher:Elsevier

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