Annuity Portfolio Management - Understanding the Relative Roles of Corporate Bonds & Mortality Risks
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Document ID: 2001-761 (previously Report 55)
Published on: 31st July 2001
Conventionally, annuity portfolios have been viewed as being comprised of known cash outflows (projected from an actuarial mortality table) matched by known cash inflows (generated by a government bond portfolio). In the real world, cash outflows are driven by an uncertain mortality experience that has proven very difficult to forecast in recent years. In addition, cash inflows generated from credit-risky corporate bond portfolios are uncertain. In our analysis, we bring these two sources of risk together within a Monte-Carlo simulation framework to understand the properties of alternative policy choices available to the manager of an annuity portfolio.
