Search Results (8)

In the digital era, tax compliance served as crucial capital. This study examines the impact of tax compliance, proxied by the effective tax rate (ETR) and validated by book–tax differences (BTD) as an alternative proxy, on the firm value of listed financial institutions in Vietnam from 2018 to 2023. Utilizing a comprehensive panel dataset of 29 listed financial firms, the empirical estimations explore a Fixed Effects Model (FEM) with Driscoll–Kraay robust standard errors to control for heteroscedasticity, autocorrelation, and cross-sectional dependence. The empirical results reveal a statistically significant positive relationship between current-period tax compliance and firm value, supporting Signaling Theory and Stewardship Theory by demonstrating that the market awards a governance premium for tax transparency. Conversely, the prior-period tax compliance exerts a significant negative impact on current valuation, validating the existence of a tax-induced liquidity drain. Under the Information Processing Theory, a legacy of robust tax compliance is conceptually argued to be transformed into a digital credit asset in the digital age. This intangible asset enables financial institutions to seamlessly navigate stringent risk screenings, secure swift access to data-driven supply chain finance systems and effectively resolve short-term cash flow bottlenecks to sustain long-term value growth. Furthermore, firm valuation is significantly shaped by key institutional control parameters. Specifically, chronological firm longevity exerts a statistically significant positive impact on market value, highlighting the pricing of historical resilience, while core accounting profitability remains positive but statistically neutral in the baseline specification. Conversely, traditional revenue expansion scale is negatively valued, signaling market skepticism toward asset-heavy, physical scaling in the digital financial era. Full article

Pricing coupon longevity bonds (CLBs) is challenging in illiquid markets due to the incompleteness of insurance markets and the unavailability of longevity payout data. In addition, pension funds may experience significant surges in annual mortality-improvement reserves (MIRs), consistent with systematic longevity drift and cohort-survival effects. We propose a Bayesian pricing model based on the Integrated Nested Laplace Approximation (INLA) for CLBs in pension-fund applications. The term structure of interest rates is modeled using a two-factor Cox–Ingersoll–Ross (CIR) specification, while mortality dynamics are captured using a CIR affine jump–diffusion model to capture abrupt longevity shocks. Posterior inference is performed via INLA and benchmarked against Markov chain Monte Carlo (MCMC). Using South African government bond yield data, pension-fund MIR series, and population survival-rate reports, we show that INLA provides a computationally efficient approximation to the MCMC posterior with substantially reduced computation time. Longevity Greeks derived from the model support hedge construction and evaluation of strategies aimed at mitigating rising longevity-linked cash flows. Empirically, model-implied longevity payouts are positively skewed with high dispersion and exhibit frequent jump episodes over a broad range, underscoring the importance of jump risk in CLB valuation and hedging. Full article

Population aging poses significant challenges to the sustainability of pension systems. This study presents an integrated methodological approach that uniquely combines actuarial life-cycle modeling with agent-based simulation to assess the potential of Reverse Mortgage Loans (RMLs) as a dual lever for enhancing retiree welfare and supporting pension system resilience under demographic and financial uncertainty. We explore Reverse Mortgage Loans (RMLs) as a potential financial instrument to support retirees while alleviating pressure on public pensions. Unlike prior research that treats individual decisions or policy outcomes in isolation, our hybrid model explicitly captures feedback loops between household-level behavior and system-wide financial stability. To test our hypothesis that RMLs can improve individual consumption outcomes and bolster systemic solvency, we develop a hybrid model combining actuarial techniques and agent-based simulations, incorporating stochastic housing prices, longevity risk, regulatory capital requirements, and demographic shifts. This dual-framework enables a structured investigation of how micro-level financial decisions propagate through market dynamics, influencing solvency, pricing, and adoption trends. Our central hypothesis is that reverse mortgages, when actuarially calibrated and macroprudentially regulated, enhance individual financial well-being while preserving long-run solvency at the system level. Simulation results indicate that RMLs can improve consumption smoothing, raise expected utility for retirees, and contribute to long-term fiscal sustainability. Moreover, we introduce a dynamic regulatory mechanism that adjusts capital buffers based on evolving market and demographic conditions, enhancing system resilience. Our simulation design supports multi-scenario testing of financial robustness and policy outcomes, providing a transparent tool for stress-testing RML adoption at scale. These findings suggest that, when well-regulated, RMLs can serve as a viable supplement to traditional retirement financing. Rather than offering prescriptive guidance, this framework provides insights to policymakers, financial institutions, and regulators seeking to integrate RMLs into broader pension strategies. Full article

Longevity risk affecting older adults can be transferred to the insurance market by purchasing a lifetime annuity. Special-rate life annuities, which are priced, among other factors, on the basis of health and lifestyle factors, go beyond traditional considerations of age and sex by using modified mortality tables. However, they are not available in many countries. In regions where life annuities are priced solely via standard mortality tables, retirees with below-average life expectancy may face unfair pricing. This study aims to quantify this actuarial unfairness and proposes an alternative annuitisation strategy for these retirees. The strategy allows them to transfer longevity risk by acquiring a life annuity on the basis of their actual mortality probabilities, thereby mitigating actuarial inequities. Additionally, the paper examines how tax incentives can exacerbate actuarial unfairness and, specifically for Spanish tax regulations, compares different alternatives under two scenarios related to the sources used for purchasing life annuities. Full article

As life expectancy increases, pension plans face growing longevity risk. Standardized longevity-linked securities such as survivor contracts allow pension plans to transfer this risk to capital markets. However, more consensus is needed on the appropriate mortality model and premium principle to price these contracts. This paper investigates the impact of the mortality model and premium principle choice on the pricing, risk measurement, and modeling of survivor contracts. We present a framework for evaluating risk measures associated with survivor contracts, specifically survivor forwards (S-forward) and survivor swaps (S-swaps). We analyze how the mortality model and premium principle assumptions affect pricing and risk measures (value-at-risk and expected shortfall). Four mortality models (Lee–Carter, Renshaw–Haberman, Cairns–Blake–Dowd, and M6) and eight premium principles (Wang, proportional hazard, dual power, Gini, exponential, standard deviation, variance, and median absolute deviation) are considered. Our analysis highlights the need to refine mortality models and premium principles to enhance pricing accuracy and risk management. We also suggest regulators and practitioners incorporate expected shortfall alongside value-at-risk to capture tail risks and improve capital allocation. Full article

We consider annuity designs in which the benefit amount is allowed to fluctuate (up or down), based on a given mortality/longevity experience. This way, guarantees are relaxed in respect of traditional annuity arrangements. On the other hand, while the annuitant is exposed to the risk of a future reduction of the benefit amount because of higher longevity, he/she can immediately take advantage of a lower premium loading, as well as of a future increase of the benefit amount in the case of higher mortality. Flexibility in the annuity design could be welcomed by individuals, as the conservative features of traditional products partly explain their lack of attractiveness in most markets. To further contribute to the flexibility of the product, we suggest a pricing structure based on periodic fees applied to the policy fund, instead of the usual upfront loading at issue. Periodic fees are more suitable to support a revision of the arrangement after issue, which is currently not allowed in traditional annuity products. We show that periodic fees can be introduced by identifying a discount factor to be used for pricing and reserving. We assume stochastic mortality, and we compare alternative mortality/longevity linking solutions, by assessing the periodic fees and other quantities. Full article

Annuities providers become more and more exposed to longevity risk due to the increase in life expectancy. To hedge this risk, new longevity derivatives have been proposed (longevity bonds, q-forwards, S-swaps…). Although academic researchers, policy makers and practitioners have talked about it for years, longevity-linked securities are not widely traded in financial markets, due in particular to the pricing difficulty. In this paper, we compare different existing pricing methods and propose a Cost of Capital approach. Our method is designed to be more consistent with Solvency II requirement (longevity risk assessment is based on a one year time horizon). The price of longevity risk is determined for a S-forward and a S-swap but can be used to price other longevity-linked securities. We also compare this Cost of capital method with some classical pricing approaches. The Hull and White and CIR extended models are used to represent the evolution of mortality over time. We use data for Belgian population to derive prices for the proposed longevity linked securities based on the different methods. Full article

Longevity risk constitutes an important risk factor for life insurance companies, and it can be managed through longevity-linked securities. The market of longevity-linked securities is at present far from being complete and does not allow finding a unique pricing measure. We propose a method to estimate the maximum market price of longevity risk depending on the risk margin implicit within the calculation of the technical provisions as defined by Solvency II. The maximum price of longevity risk is determined for a survivor forward (S-forward), an agreement between two counterparties to exchange at maturity a fixed survival-dependent payment for a payment depending on the realized survival of a given cohort of individuals. The maximum prices determined for the S-forwards can be used to price other longevity-linked securities, such as q-forwards. The Cairns–Blake–Dowd model is used to represent the evolution of mortality over time that combined with the information on the risk margin, enables us to calculate upper limits for the risk-adjusted survival probabilities, the market price of longevity risk and the S-forward prices. Numerical results can be extended for the pricing of other longevity-linked securities. Full article