Moshe Arye Milevsky

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of Cyprus, the American Economics Association and the Western Finance Association annual meeting. Please note that the current version of this paper is a combination of two previous working papers that were independently circulated under the titles: The Real Option to Defer Annuitization: It's Not Now-or-Never and Optimal Annuity Purchasing. Abstract This(More)
The risk of outliving your money (or shortfall) with low risk, low return investments is very often more serious than the risk of losing money on high risk investments, until quite late in life. A stochastic process model incorporating mortality tables for men and women of retirement age, random rates of return and fixed initial wealth and desired level of(More)
The authors use risk-neutral option pricing theory to value the guaranteed minimum death benefit (GMDB) in variable annuities (VAs) and some recently introduced mutual funds. A variety of death benefits, such as return-of-premium, rising floors, and " ratches, " are analyzed. Specifically, the authors compute the fair insurance risk fee, charged to assets,(More)
Asset allocation and consumption towards the end of the life cycle is complicated by the uncertainty associated with the length of life. Although this risk can be hedged with life annuities, empirical evidence suggests that voluntary annuitization amongst the public is not very common, nor is it well understood. This paper develops a normative model of(More)
In this note, we derive the optimal utility-maximizing asset allocation between a risky and risk-free asset within a variable annuity (VA) contract, which is a US-based savings and decumulation investment product. We are interested in the interaction between financial risk, mortality risk and consumption, towards the end of the life cycle. Our main result(More)
Most individuals must decide how much of their marketable wealth should be annuitized at retirement. The natural alternative to annuitization is investing the wealth and withdrawing the exact same consumption stream as the annuity would have provided. Of course, this strategy risks under-funding retirement in the event of below average investment returns(More)
In this paper, we derive the optimal investment and annuitization strategies for a retiree whose objective is to minimize the probability of lifetime ruin, namely the probability that a fixed consumption strategy will lead to zero wealth while the individual is still alive. Recent papers in the insurance economics literature have examined utility-maximizing(More)
JRI reviewers. A previous version of this paper circulated under the title of: A Note on the Solid Value of Liquid Utility. ABSTRACT Academics and practitioners alike have developed numerous techniques for bench-marking investment returns to properly adjust seemingly-high numbers for excessive levels of risk. The same, however, can not be said for(More)