TITLE
"Pricing of a European Call Option on Pension Annuity Insurance," Journal of Insurance Issues, Rami Yosef, Uri Benzion, and Shulamith T. Gross, Spring 2004, Vol. 27, No. 1, pp. 66-82. Full-text articles soon will be available through ABI/INFORM and EBSCO; click here for article PDF.

ABSTRACT
We present a European call option that is defined on a pension annuity insurance contract.  This option gives the holder of the contract the opportunity to buy a pension annuity benefit for a given (strike) price at the age of retirement or any other age.  Thus instead of contributed monthly payments to the pension fund, the holder of the option contract would be entitled to buy this European call option as insurance and to fix the terms of payment in advance. Consequently, holders could invest their money in the market at their own discretion. This approach to pension insurance introduces traditional pension pricing to the financial world. We present the model and illustrate the pricing for some particular cases, and we draw comparisons to traditional pension contracts. In doing so, we use methods from actuarial mathematics and mathematics of finance. 

[Keywords: Binomial model, European call option, life insurance, pension insurance ]