Defined terms for the annuity market and lifetime income landscape.
Tail risk is the exposure to extreme outcomes — events out in the tail of a probability distribution — that, while individually rare, can dominate the overall result for an individual or institution exposed to them.
A time average is the average of an outcome's values experienced by a single agent over a long period of time, treated as a measure of what that one agent actually experiences as the system unfolds.
A time-average return is the geometric mean per-period return realized by an investment held continuously over many periods, equivalent to the time-average growth rate of the invested capital.
Volatility drag is the structural cost that variation in period-to-period returns imposes on long-run compounded growth — the gap by which an investor's realized compounded return falls short of the simple arithmetic average of the period returns, with the gap growing as the variation grows.
