Joint and Survivor Annuity Valuation with a Bivariate Reinforced Urn Process

Abstract

We introduce a novel way of modeling the dependence of coupled lifetimes, for the pricing of joint and survivor annuities. Using a well-known Canadian data set, our results are analysed and compared with the existing literature, mainly relying on copulas. Based on urn processes and a one-factor construction, the proposed model is able to improve its performances over time, in line with the machine learning paradigm, and it also allows for the use of experts’ judgements, to complement the empirical data.

Keywords: urn process, joint distribution, annuity, mortality

JEL Classification: C11, G22, J32