Pricing Buy-Ins and Buy-Outs

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LIN Y., SHI T., ARIK A.

JOURNAL OF RISK AND INSURANCE, vol.84, pp.367-392, 2017 (SSCI) identifier identifier

  • Publication Type: Article / Article
  • Volume: 84
  • Publication Date: 2017
  • Doi Number: 10.1111/jori.12159
  • Journal Name: JOURNAL OF RISK AND INSURANCE
  • Journal Indexes: Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.367-392
  • Hacettepe University Affiliated: Yes

Abstract

Pension buy-ins and buy-outs have become an important aspect of managing pension risk in recent years. As a step toward understanding these pension de-risking instruments, we develop models for pricing investment risk and longevity risk embedded in pension buy-ins and buy-outs. We also bring a contingent-claims framework to price credit risk of buy-in bulk annuities. Overall, our model can be used to assess the pricing of investment, longevity, and credit risks being transferred in pension buy-in and buy-out transactions.