Moshe Arye Milevsky

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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)
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 returnof-premium, rising floors, and “ratches,” are analyzed. Specifically, the authors compute the fair insurance risk fee, charged to assets,(More)
Asian options belong to the so-called path-dependent derivatives. They are among the most difficult to price and hedge both analytically and numerically. Basket options are even harder to price and hedge because of the large number of state variables. Several approaches have been proposed in the literature, including Monte Carlo simulations, tree-based(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)
At retirement, most individuals face a choice between voluntary annuitization and discretionary management of assets with systematic withdrawals for consumption purposes. Annuitization— buying a life annuity from an insurance company—assures a lifelong consumption stream that cannot be outlived, but it is at the expense of a complete loss of liquidity. On(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 utilitymaximizing(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)
Academics and practitioners alike have developed numerous techniques for benchmarking investment returns to properly adjust seemingly-high numbers for excessive levels of risk. The same, however, can not be said for liquidity, or the lack thereof. This paper develops a model for analyzing the ex ante liquidity premium demanded by the holder of an illiquid(More)