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European Actuarial Journal

07-02-2025 | Original Research Paper

Decomposing changes in life annuities

Author: Cinzia Di Palo

Published in: European Actuarial Journal

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Abstract

This paper proposes a novel approach for assessing changes in the expected present value of life annuities by adapting decomposition techniques traditionally applied in demographic research. Building upon Vaupel and Canudas–Romo’s method, a closed-form relationship is derived within the continuous framework to express changes in the expected present value of life annuities. By employing commutation functions, the concept of financially adjusted life-table entropy is introduced to capture the interplay between mortality and interest rate changes, offering a new and comprehensive measure for evaluating annuity price sensitivity. The approach is illustrated through a numerical application using life tables from Italy and the United Kingdom.

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Appendix
Available only for authorised users
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Metadata
Title
Decomposing changes in life annuities
Author
Cinzia Di Palo
Publication date
07-02-2025
Publisher
Springer Berlin Heidelberg
Published in
European Actuarial Journal
Print ISSN: 2190-9733
Electronic ISSN: 2190-9741
DOI
https://doi.org/10.1007/s13385-025-00409-8