Closed-form tontine payouts under a trend-adjusted affine longevity model

We study pre-committed payout design for a retirement tontine whose members share idiosyncratic and systematic longevity risk. Mortality is decomposed into a deterministic interacted-Gompertz age–period baseline and a unit-mean stationary affine residual factor. Population death counts are conditionally Poisson, whereas survivors in the closed cohort are conditionally binomial given the common factor path. We prove an exponential-affine transform for finite-cohort survivor moments and use it to obtain an exact backward recursion for the optimal pre-committed payout schedule under representative-member CRRA welfare. In Canadian data calibrated on ages 65–100, longevity pooling is worth 30.9%–32.1% of initial wealth relative to individual drawdown under a zero-bequest benchmark, while an idealized fair annuity adds only 0.11%–0.21% beyond the tontine. A ±10% change in the mortality-improvement rate costs up to 6.71%, disagreement between Lee–Carter and CBD up to 4.58%, and state-dependent adaptation at most 0.16%; by contrast, designing specifically for the fitted residual factor is worth under 0.002%. A bootstrap diagnostic rejects the joint null of the parsimonious baseline and no residual layer, while recovery experiments document substantial finite-sample uncertainty in persistence. Estimates for the United Kingdom, Australia, the United States, and Japan show that persistent residual variation is not specific to Canada.

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Publication Details

Journal
Scandinavian Actuarial Journal
Published
2026-08-20
DOI
https://doi.org/10.1080/03461238.2026.2715356
Primary Topic
Insurance, Mortality, Demography, Risk Management
Type
article
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article

Closed-form tontine payouts under a trend-adjusted affine longevity model

Marcos Escobar‐Anel
Scandinavian Actuarial Journal
Insurance, Mortality, Demography, Risk Management
article

Closed-form tontine payouts under a trend-adjusted affine longevity model

Marcos Escobar‐Anel
article en

Abstract

We study pre-committed payout design for a retirement tontine whose members share idiosyncratic and systematic longevity risk. Mortality is decomposed into a deterministic interacted-Gompertz age–period baseline and a unit-mean stationary affine residual factor. Population death counts are conditionally Poisson, whereas survivors in the closed cohort are conditionally binomial given the common factor path. We prove an exponential-affine transform for finite-cohort survivor moments and use it to obtain an exact backward recursion for the optimal pre-committed payout schedule under representative-member CRRA welfare. In Canadian data calibrated on ages 65–100, longevity pooling is worth 30.9%–32.1% of initial wealth relative to individual drawdown under a zero-bequest benchmark, while an idealized fair annuity adds only 0.11%–0.21% beyond the tontine. A ±10% change in the mortality-improvement rate costs up to 6.71%, disagreement between Lee–Carter and CBD up to 4.58%, and state-dependent adaptation at most 0.16%; by contrast, designing specifically for the fitted residual factor is worth under 0.002%. A bootstrap diagnostic rejects the joint null of the parsimonious baseline and no residual layer, while recovery experiments document substantial finite-sample uncertainty in persistence. Estimates for the United Kingdom, Australia, the United States, and Japan show that persistent residual variation is not specific to Canada.

Scandinavian Actuarial Journal
University of Western States (US)
Openalex Percentile: Top 3%
Insurance, Mortality, Demography, Risk Management
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Closed-form tontine payouts under a trend-adjusted affine longevity model — Marcos Escobar‐Anel · Scandinavian Actuarial Journal (2026) | TGRS Research Map | TGRS