A Universal Pricing Framework for Guaranteed Minimum Benefits in Variable Annuities
TL;DR: In this article, the authors proposed a general framework for pricing variable annuities with embedded guarantees, including guaranteed minimum death benefits (GMDB) and guaranteed minimum living benefits (GMLB).
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Abstract: Variable Annuities with embedded guarantees are very popular in the US market. There exists a great variety of products with both, guaranteed minimum death benefits (GMDB) and guaranteed minimum living benefits (GMLB). Although several approaches for pricing some of the corresponding guarantees have been proposed in the academic literature, there is no general framework in which the existing variety of such guarantees can be priced consistently. The present paper fills this gap by introducing a model, which permits a consistent and extensive analysis of all types of guarantees currently offered within Variable Annuity contracts. Besides a valuation assuming that the policyholder follows a given strategy with respect to surrender and withdrawals, we are able to price the contract under optimal policyholder behavior. Using both, MonteCarlo methods and a generalization of a finite mesh discretization approach, we find that some guarantees are overpriced, whereas others, e.g. guaranteed annuities within guaranteed minimum income benefits (GMIB), are offered significantly below their risk-neutral value.
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Citations
Variable annuities: A unifying valuation approach
TL;DR: In this article, the authors propose a unifying framework for the valuation of variable annuities under quite general model assumptions, and compute and compare contract values and fair fee rates under different valuation approaches, via ordinary and least squares Monte Carlo methods, respectively.
185
Variable Annuities: A Unifying Valuation Approach
TL;DR: In this paper, the authors propose a unifying framework for the valuation of variable annuities under quite general model assumptions, and compute and compare contract values and fair fee rates under'static' and'mixed' valuation approaches, via ordinary and least squares Monte Carlo methods, respectively.
173
The effect of modelling parameters on the value of GMWB guarantees
TL;DR: In this article, an extensive study of the no-arbitrage fee for Guaranteed Minimum Withdrawal Benefit (GMWB) variable annuity riders is carried out.
A numerical scheme for the impulse control formulation for pricing variable annuities with a guaranteed minimum withdrawal benefit (GMWB)
Zhuliang Chen,Peter Forsyth +1 more
TL;DR: A numerical scheme for solving the Hamilton–Jacobi–Bellman (HJB) variational inequality corresponding to the impulse control problem and it is proved the convergence of the scheme to the viscosity solution of the continuous withdrawal problem.
Longevity risk management for life and variable annuities: The effectiveness of static hedging using longevity bonds and derivatives
Andrew Ngai,Michael Sherris +1 more
TL;DR: In this paper, the effectiveness of static hedging strategies for longevity risk management using longevity bonds and derivatives ( q -forwards) for the retail products: life annuity, deferred life, indexed life, and variable annuity with guaranteed lifetime benefits.
113
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