Flights of Fancy wrote:There are some newsletters which may be of interest here:
See, in particular, What is a Guaranteed Lifetime Income Benefit Really Worth? and the article on the probability of a GLiB re-set
Thank you for the link.
I noticed that the model used in the article uses a discount factor of 4.0% (nominal) in valuing annuities. According to the Bank of Canada, the benchmark long term bond rate for Gov't of Canada bonds in October 2010 (when the article was published) was 3.5%. In fact it has been around that level for over a year now.
I was under the impression that designers of annuities used the long-term government bond rate. Was I wrong? How was the 4.0% discount rate chosen?
Thank you in advance.