Sensitivity Analysis of Annuity Models: What's inside the black box?

Sensitivity Analysis of Annuity Models: What's inside the black box?

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Annuities constitute a fundamental branch in the life insurance business. To obtain the cost of annuities, Financial and demographic factors are the key inputs for the related mathematical quantitative models. In this work [1], we adopt and compare different approaches to gain insights on the behavior of annuities, their structure and on the importance of their input factors. In particular, the sensitivity analysis is carried out at different location scales [2]. Moreover, we conduct the uncertainty quantification of the cost of annuities in case of dependence among inputs. Our results show that the contribution of financial risk to the cost of annuities plays a major role than the one of mortality risk, confirming with alternative methods the findings of [3].

[1] Borgonovo, E. and Rabitti, G. (2019), “Sensitivity Analysis of Annuity Models.” Working paper.

[2] Borgonovo, E. (2017), “Sensitivity Analysis. An Introduction for the Management Scientist.” Cham: Springer.

[3] Karabey, U., Kleinow, T., Cairns, A. J. G. (2014), “Factor risk quantification in annuity models.” Insurence: Mathematics and Economics, vol. 58, pp. 34-45.

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