Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation

Managing longevity risks is of growing importance in Singapore due to demographic changes and the unique retirement policy. There is a growing demand for variable annuity products to shield against the erosion of inflation and the diminishing annual income as life expectancy continues to improve. Ho...

Full description

Saved in:
Bibliographic Details
Main Authors: Sun, Si Lu, Yu, Shu Mei, Zhang, Chen
Other Authors: Jackie Li
Format: Final Year Project
Language:English
Published: 2013
Subjects:
Online Access:http://hdl.handle.net/10356/51573
Tags: Add Tag
No Tags, Be the first to tag this record!
Institution: Nanyang Technological University
Language: English
id sg-ntu-dr.10356-51573
record_format dspace
spelling sg-ntu-dr.10356-515732023-05-19T03:30:02Z Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation Sun, Si Lu Yu, Shu Mei Zhang, Chen Jackie Li Nanyang Business School DRNTU::Business::Finance::Actuarial science Managing longevity risks is of growing importance in Singapore due to demographic changes and the unique retirement policy. There is a growing demand for variable annuity products to shield against the erosion of inflation and the diminishing annual income as life expectancy continues to improve. However, variable annuities subject the insurers to not only longevity risks but also the volatility of the financial market. In this research, we use the Lee-Carter Model to forecast the mortality outlook of Singapore retirees aged 62 and above. We also use ARIMA time series model to fit the Straits Time Index (STI) and the current yield of 20-year Singapore government bond. To analyse the combined effect of longevity risk and financial risks, we stimulate the net present values of returns on investment in portfolios across a spectrum of risk exposures using simple Monte Carlo simulation. Our research reveals that the expected returns on investment in variable annuities are generally positive, however the variance of returns is significant. There are risk-return trade- offs which require the policyholders to consider their risk appetite in choosing a suitable portfolio. We also discover that at older ages, the marginal reward for investing in riskier portfolios diminishes, as the increase in variance of returns, and hence the risk exposure is more than proportionate to the increase in expected returns. BUSINESS 2013-04-05T06:18:37Z 2013-04-05T06:18:37Z 2013 2013 Final Year Project (FYP) http://hdl.handle.net/10356/51573 en Nanyang Technological University 72 p. application/pdf
institution Nanyang Technological University
building NTU Library
continent Asia
country Singapore
Singapore
content_provider NTU Library
collection DR-NTU
language English
topic DRNTU::Business::Finance::Actuarial science
spellingShingle DRNTU::Business::Finance::Actuarial science
Sun, Si Lu
Yu, Shu Mei
Zhang, Chen
Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation
description Managing longevity risks is of growing importance in Singapore due to demographic changes and the unique retirement policy. There is a growing demand for variable annuity products to shield against the erosion of inflation and the diminishing annual income as life expectancy continues to improve. However, variable annuities subject the insurers to not only longevity risks but also the volatility of the financial market. In this research, we use the Lee-Carter Model to forecast the mortality outlook of Singapore retirees aged 62 and above. We also use ARIMA time series model to fit the Straits Time Index (STI) and the current yield of 20-year Singapore government bond. To analyse the combined effect of longevity risk and financial risks, we stimulate the net present values of returns on investment in portfolios across a spectrum of risk exposures using simple Monte Carlo simulation. Our research reveals that the expected returns on investment in variable annuities are generally positive, however the variance of returns is significant. There are risk-return trade- offs which require the policyholders to consider their risk appetite in choosing a suitable portfolio. We also discover that at older ages, the marginal reward for investing in riskier portfolios diminishes, as the increase in variance of returns, and hence the risk exposure is more than proportionate to the increase in expected returns.
author2 Jackie Li
author_facet Jackie Li
Sun, Si Lu
Yu, Shu Mei
Zhang, Chen
format Final Year Project
author Sun, Si Lu
Yu, Shu Mei
Zhang, Chen
author_sort Sun, Si Lu
title Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation
title_short Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation
title_full Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation
title_fullStr Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation
title_full_unstemmed Managing longevity risks in Singapore : an analysis of returns on variable annuities using the Lee-Carter model, financial time series analysis and Monte Carlo simulation
title_sort managing longevity risks in singapore : an analysis of returns on variable annuities using the lee-carter model, financial time series analysis and monte carlo simulation
publishDate 2013
url http://hdl.handle.net/10356/51573
_version_ 1770567185962369024