Coherent pricing of life settlements under asymmetric information

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<title>Coherent pricing of life settlements under asymmetric information</title>
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<namePart>Bauer, Daniel</namePart>
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<abstract displayLabel="Summary">Although life settlements are advertised to deliver a profitable investment opportunity with a low correlation to market systematic risk, recent investigations reveal a discrepancy of expected and realized returns. While thus far this discrepancy has been attributed to the (allegedly) poor quality of the underlying life expectancy estimates, we present a different explanation of the seemingly high reported expected returns based on {adverse selection. In particular, we provide a coherent pricing mechanism and pricing formulas in the presence of asymmetric information with respect to the underlying life expectancies. Therefore, our study sheds light on the nature of the unique risks within life settlements as recently discussed in the financial press.</abstract>
<note type="statement of responsibility">Nan Zhu, Daniel Bauer</note>
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<topic>Rentabilidad</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080580377">
<topic>Esperanza de vida</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080570590">
<topic>Seguro de vida</topic>
</subject>
<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080579258">
<topic>Cálculo actuarial</topic>
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<title>The Journal of risk and insurance</title>
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<publisher>Nueva York : The American Risk and Insurance Association, 1964-</publisher>
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<identifier type="issn">0022-4367</identifier>
<identifier type="local">MAP20077000727</identifier>
<part>
<text>02/09/2013 Volumen 80 Número 3 - septiembre 2013 , p. 827-851</text>
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