Demographic Uncertainty and Financial Risk
Background:
The purpose of this project is to investigate both market and policy responses to demographic risk, i.e. to uncertainty about future aggregate fertility, mortality and migration rates. It will provide estimates of the magnitude of these risks and assess the importance of the latter for annuity pricing. This will provde some guidance as to whether the apparent failure of the annuity market with consequences such as the absence of widespread home equity withdrawal schemes can in fact be attributed to aggregate mortality risk or not. The project will study empirically and theoretically both public and private sector means for dispersing these risks across future generations, with the former working through and willingness of the public sector to borrow in periods when demographic shocks lead it short of revenues and the latter operating through inheritance. There may also be grounds for the public sector to issue longevity bonds, taking mortality risk over from the private sector. Equally there is the possiblility that the public sector already bears too much demographic risk and it should find ways of transferring some of this back to the private sector. The project spreads across the fields of demography, economics and finance.
Working Papers:
WEF0027
Annuities and Aggregate Mortality Uncertainty
Justin van de Ven, Martin Weale
Researchers:
Mr Martin Weale
Dr Justin van de Ven
National Institute of Economic & Social Research
Contact:
Mr Martin Weale
National Institute of Economic & Social Research (NIESR)
2 Dean Trench Street
London
SW1P 3HE
Tel: 020 7654 1945
email: mweale@niesr.ac.uk
Duration of Research:
April 2006 - September 2007