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CIM PROGRAMS AND ACTIVITIES |
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| November 24, 2024 |
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Audio and Slides of talks
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Wednesday, November 25,
2009
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| 8:30-8:55 | REGISTRATION & BUFFET BREAKFAST |
| 8:55-9:00 | OPENING REMARKS Prof. Edward Bierstone, University of Toronto & Director, Fields Institute Prof. Moshe A. Milevsky, Schulich School of Business, York University |
| 9:00-10:15 | KEYNOTE ADDRESS #1, PLUS Q&A Professor Eytan Sheshinski, Hebrew University & Princeton University Recent Innovations in Annuities |
| 10:15-10:30 | COFFEE BREAK |
| 10:30-11:45 | KEYNOTE ADDRESS #2, PLUS Q&A Professor Michael Sheris, University of New South Wales Securitization, Structuring and Pricing of Longevity Risk |
| 11:45-12:30 | BUFFET LUNCH & NETWORKING OPPORTUNITY |
| 12:30-1:15 | RESEARCH SEMINAR Professor Nabil Tahani, York University Targeting Retirement Odds: Better Approximations with Higher Sustainability |
| 1:15-2:30 |
PH.D. AWARD WINNERS (30 MINUTE PRESENTATIONS) Kim Peijnenburg, Tilburg University |
| 2:30 | CLOSING REMARKS |
List of Speakers:
Keynote Lecture #1, Prof. Eytan Sheshinski, Hebrew University
Keynote Lecture #2, Prof. Michael Sherris, University of New South
Wales
Research Presentation #1, Prof. Nabil Tahani, York University
Abstracts:
Prof. Michael Sherris, University of New South Wales
Securitization, Structuring and Pricing of Longevity Risk
Pricing and risk management for longevity risk has increasingly
become a major challenge for life insurers and pension funds around
the world. Risk transfer to financial markets, with their major
capacity for efficient risk pooling, is an area of significant development
for a successful longevity product market. The structuring and pricing
of longevity risk using modern securitization methods, common in
financial markets, has yet to be successfully implemented for longevity
risk management. There are many issues that remain unresolved in
order to ensure the successful development of a longevity risk market.
This paper considers the securitization of longevity risk focusing
on the structuring and pricing of a longevity bond using techniques
developed in the financial markets, particularly for mortgages and
credit risk. A model based on Australian mortality data and calibrated
to insurance risk linked market data is used to assess the structure
and market consistent pricing of a longevity bond. Age dependence
in the securitized risks is shown to be a critical factor in structuring
and pricing longevity linked securitizations.
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Prof. Eytan Sheshinski, Hebrew University and Princeton
University
Recent Innovations in Annuities
I shall focus my remarks on two explanations of the so-called "Annuity
Puzzle" and propose the creation of new financial instruments
that will make income annuities more attractive. (1.) The Illiquidity
of income annuities due to the lack of residual (or secondary) markets
is a major reason for the reluctance to purchase annuities. I will
propose a new type of "Guaranteed Annuities", equivalent
to annuity options, which enable resale at predetermined prices.
(2.) Out of pocket health expenditures are increasingly a problem
for the elderly. We propose a new type of "Life Care Annuities"
which have flexible rules to convert retirement benefits to cover
medical expenses when needed. I shall also identify the self-selection
of individuals who purchase annuities with a bequest option and
those who purchase regular annuities, making the connection to life
insurance.
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Prof. Nabil Tahani, York University
Targeting Retirement Odds: Better Approximations with Higher
Sustainability
This talk will consist of two parts. The first part discusses and
then extends the literature on the sustainability of retirement
income by making consumption a stochastic variable instead of a
constant real value, as previous papers have done. Using different
lifestyle scenarios, I will show that the difference in shortfall
probabilities (a.k.a. risk of ruin) between the variable cases and
the fixed consumption case is significant. In general, an initial
consumption (or spending rate) of more than 4% of initial wealth
is not sustainable for any likely set of conditions. In the very
best case, an initial consumption rate of 6% is sustainable, but
this case will fit very few people. The second part of the talk
deals with the classic pre-retirement problem in which a client
is advised on how much to save each year to reach a specified goal
and how the investment assets should be allocated between fixed
income and equity. I will derive a stochastic model in which the
rate of return and the rate of increase of annual savings are both
variable and calculate the probability that a particular goal will
be achieved. I will illustrate the use and provide some numerical
results of the model with a realistic retirement planning scenario
and variations.
Ph.D. Student Paper Award Winners:
Luis Goncalves-Pinto
PhD Candidate in Finance
USC Marshall School of Business
Title: How Does Illiquidity Affect Delegated Portfolio Choice?
Abstract:
In a continuous-time dynamic portfolio choice framework, I study
the problem of an investor who exogenously decides to delegate the
administration of her savings to a risk-averse money manager who
trades multiple risky assets in a thin market. I consider a manager
who is rewarded for increasing the value of assets under management,
which is the product of both the manager's portfolio allocation
decisions, taken over the investment period, and the money flows
into and out of the fund, as a result of the portfolio performance
relative to an exogenous benchmark. The model proposed here shows
that, whenever the manager can substitute between more illiquid
and less illiquid risky assets, she is likely to choose to hold
an initial portfolio that is skewed toward more illiquid assets,
and to gradually shift toward less illiquid assets over the investment
period. The model further shows that, several misalignments of objectives
between the investor and the manager can lead to large utility costs
on the part of the investor, and that these costs decrease with
asset illiquidity. Solving for the shadow costs of illiquidity,
the model indicates that delegated rather than direct investing
is likely to lead to larger price discounts.
Full paper available here
Kim Peijnenburg
Doctoral candidate
Department of Econometrics and Operations Research
Tilburg University
Title: Optimal Annuitization with Background Risk and
Equity Exposure During Retirement
Abstract:
We examine optimal annuity demand and incorporate background risk
and incomplete annuity menus as possible drivers of deviations from
full annuitization. Contrary to what is often suggested in the literature,
we find that in these settings full annuitization remains close
to optimal. Whenever liquidity or equity exposure is desired, individuals
save sizeable amounts out of their annuity income to smooth shocks
due to background or inflation risk and/or to get equity exposure.
Similarly, adding variable annuities to the menu does not increase
welfare significantly, since individuals can save in order to get
the desired equity exposure.
Full paper available here