Optimal Retirement Tontines For The 21st Century: With Reference To Mortality Derivatives In 1693

2014, Milevsky & Thomas S. Salisbury, Professor, Department of Mathematics and Statistics, York University, Toronto

Historical tontines promised enormous rewards to the last few survivors at the expense of those died early. And, while this design appealed to the gambling instinct, it is a suboptimal way to manage and generate retirement income. This is why fair life annuities making constant payments — where the insurance company is exposed to longevity risk — induces greater lifetime utility. But, tontines do not have to be structured as a fixed cash- flow shared among a shrinking number of survivors and insurance companies do not actually sell fair life annuities, partially due to aggregate longevity risk.

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