Can an Actuarially Unfair Tontine Be Optimal?

Thursday, 23 Nov 2023

3.30 pm – 5 pm

 

Venue: NTU Gaia Meeting Room 12 (ABS-06-118)

 

Chairperson: Asst Prof Wei Pengyu 

 

 

Abstract

A one-period tontine is a collective investment fund in which every participant enters with an initial contribution, but only those participants who are still alive at maturity are entitled to receive a share of the total fund value. A vast literature proposes various sharing rules, primarily using actuarial fairness of the payout as the main criterion, i.e., the sharing is structured in a way that participants have the same (unconditional) expected return. We revisit this point and suggest alternative sharing rules that aim at being better suited to investors. Specifically, we discuss how to share mortality risk using equality in expected utility among participants as our fairness criterion. A key finding is that, in a competitive market, only actuarially fair tontines are viable.

 

Authors :

Carole Bernard (Grenoble Ecole de Management), Marco Feliciangeli (Vrjie universiteit Brussel) and Steven Vanduffel  (Vrjie universiteit Brussel).

 

About the Speaker

Carole Bernard worked at the University of Waterloo from 2006 to 2015. She is now a professor at GEM in Grenoble and VUB in Brussels. Some of her papers have received awards such as the 2006 NAAJ best paper, the 2011 EGRIE Young Economist Best Paper, the 2012 Johan de Witt prize from the Dutch Actuarial Society, the 2014 PRMIA award for Frontiers in Risk Management and the 2018 ARIA R.C. Witt award. She is on the editorial board of SIAM Journal on Financial Mathematics, Journal of Risk and Insurance and Journal of Banking and Finance.