Prague Economic Papers 2020, 29(4):445-468 | DOI: 10.18267/j.pep.745

Application of Copulas to Modelling of Marriage Reverse Annuity Contract

Joanna Dębickaa, Stanisław Heilperna, Agnieszka Marciniuka
a Wroclaw University of Economics, Faculty of Management, Computer Science and Finance, Poland

We model the probabilistic structure and cash flows arising from marriage reverse annuity contracts in the case of the joint-life status and the last surviving status. In contrast to the classical approach, we take into consideration that future lifetimes between spouses are dependent. The structure of dependence of the length of spouses' lives is modelled using copulas. The term structure of interest rate is modelled using a time-dependent function. The numerical results are based on actual Polish data covering both the structure of the probabilistic model and the interest rate.

Keywords: Longevity risk, dependent lifetimes, reverse annuity contract, selling model, multistate model, copula, equity release contracts
JEL classification: C60, G17, G22, J10

Received: March 15, 2019; Revised: November 4, 2019; Accepted: December 10, 2019; Prepublished online: May 11, 2020; Published: August 31, 2020  Show citation

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Dębicka, J., Heilpern, S., & Marciniuk, A. (2020). Application of Copulas to Modelling of Marriage Reverse Annuity Contract. Prague Economic Papers, 29(4), 445-468. doi: 10.18267/j.pep.745
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