Paper: arXiv 2611.15211

Authors: Eckhard Platen

Abstract

The paper proposes generating annuity payment streams at far lower costs than those implied by traditional theories. For a given investment universe, this enables the design of a least expensive standard pension, providing accurate monthly payments of savings account units over a set period. Such a standard pension invests dynamically in the savings account and the equity market’s growth-optimal portfolio to replicate riskless payments with high accuracy at the lowest possible cost. Since this mathematically grounded standard pension is reliable and, by orders of magnitude, less expensive than traditional pensions, it provides a unique opportunity to improve the health of pension systems and provide more benefits for retirees.

Complexity vs Empirical Score

  • Math Complexity: 7.5/10
  • Empirical Rigor: 6.0/10
  • Quadrant: Holy Grail — high math complexity, high empirical rigor

Why this score: The paper presents a mathematically grounded approach to pension design, leveraging advanced concepts like benchmark-neutral pricing and growth-optimal portfolios. It supports its claims with empirical observations of the MSCI and discusses hedging accuracy, though full backtesting details are not yet exhaustive in the excerpt. The core idea of significantly cheaper annuities is highly novel and impactful.

Research Flowchart

  flowchart TD
    A[Research Goal: Least Expensive Standard Pensions] --> B{Key Methodology: Dynamic Investment Strategy};
    B --> C[Data/Inputs: Savings Account Units, Equity Market Growth-Optimal Portfolio];
    C --> D{Computational Process: Replicate Riskless Payments};
    D --> E[Outcome: Mathematically Grounded Standard Pension];
    E --> F[Impact: Reliable, Orders of Magnitude Less Expensive Pensions];