Options on pension annuity

Shulamith T. Gross, Rami Yosef, Uri Benzion

Research output: Contribution to journalArticlepeer-review


We introduce a European (exotic) call option on a pension annuity. The option gives its owner the right to buy, for a specified lump sum, an ordinary annuity (pension) that starts at a specified future date ("retirement age"). Thus, instead of contributing monthly to a pension fund, one could buy this option and insure the terms of their retirement. We price the options under stochastic interest rates in both discrete and continuous time regimes. In the discrete time case, we use an order 2 autoregressive process (AR(2)). In the continuous time case, we use simulations of the short interest rate according to various models, such as CIR, and simulations of GARCH process estimated from real data.

Original languageEnglish
Pages (from-to)106-121
Number of pages16
JournalInvestment Management and Financial Innovations
Issue number3
StatePublished - 1 Jan 2007


  • Autoregressive process AR(2)
  • European call option
  • GARCH autoregressive process
  • Stochastic interest rates

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management


Dive into the research topics of 'Options on pension annuity'. Together they form a unique fingerprint.

Cite this