A Unified Markov Chain Monte Carlo Framework for Valuation and Assessment of Retirement Income Products

This project develops a flexible and comprehensive framework for valuation and assessment of a catalogue of retirement income products currently traded in the market which include, account-based pension, life annuities, variable annuities and group self-annuities. This is facilitated by utilising the Markov Chain Monte Carlo (MCMC) approach; a proven technique whose computational cost is dimension invariant. A metric for assessing the risk-return trade-offs for each product is presented which can readily be adapted by financial advisors, superannuation funds and pension providers as a tool for aiding the decision-making process around suitable products for retirees. The project is a firm step towards addressing key recommendations from Australia’s retirement income covenant which mandates trustees of superannuation funds in developing strategies aimed at i) maximising expected retirement income over individuals’ lifetimes, ii) managing longevity, investment and inflation risks for members, and iii) enhancing flexibility in accessing member funds over the retirement period.

Find the Q&A here: Q&A on 'Lifetime Income Products'