Comonotonic Approximations of Risk Measures for Variable Annuity Guaranteed Benefits with Dynamic Policyholder Behavior

Feng, Runhuan; Jing, Xiaochen; Dhaene, Jan

doi:10.2139/ssrn.2577809

Cited by 3 publications

(2 citation statements)

References 34 publications

(30 reference statements)

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“…This is confirmed empirically by different studies (e.g., Sun and Mo, 2011;Knoller et al, 2016). It is common in the literature to incorporate dynamic lapsation by way of a piecewise linear function of the moneyness of the guarantee, see Feng et al (2017), Ledlie et al (2008) and Ngai and Sherris (2011), among others.…”

Section: Lapse Assumptionsmentioning

confidence: 54%

A Mixed Bond and Equity Fund Model for the Valuation of Variable Annuities

Augustyniak¹,

Godin²,

Hamel³

2020

ASTIN Bull.

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Variable annuity (VA) policies are typically issued on mutual funds invested in both fixed income and equity asset classes. However, due to the lack of specialized models to represent the dynamics of fixed income fund returns, the literature has primarily focused on studying long-term investment guarantees on single-asset equity funds. This article develops a mixed bond and equity fund model in which the fund return is linked to movements of the yield curve. Theoretical motivation for our proposed specification is provided through an analogy with a portfolio of rolling horizon bonds. Moreover, basis risk between the portfolio return and its risk drivers is naturally incorporated into our framework. Numerical results show that the fit of our model to Canadian VA data is adequate. Finally, the valuation of VAs is illustrated and it is found that the prevailing interest rate environment can have a substantial impact on guarantee costs.

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Section: Lapse Assumptionsmentioning

confidence: 54%

A Mixed Bond and Equity Fund Model for the Valuation of Variable Annuities

Augustyniak¹,

Godin²,

Hamel³

2020

ASTIN Bull.

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“…But Monte Carlo method is generally extremely time consuming for complex models (c.f. [12]). This article is a concrete step in the direction of pricing of GAOs under the correlation direction.…”

Section: Introductionmentioning

confidence: 99%

General Price Bounds for Guaranteed Annuity Options

Bahl,

Sabanis

2017

Preprint

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In this paper, we are concerned with the valuation of Guaranteed Annuity Options (GAOs) under the most generalised modelling framework where both interest and mortality rates are stochastic and correlated. Pricing these type of options in the correlated environment is a challenging task and no closed form solution exists in the literature. We employ the use of doubly stochastic stopping times to incorporate the randomness about the time of death and employ a suitable change of measure to facilitate the valuation of survival benefit, there by adapting the payoff of the GAO in terms of the payoff of a basket call option. We derive general price bounds for GAOs by utilizing a conditioning approach for the lower bound and arithmeticgeometric mean inequality for the upper bound. The theory is then applied to affine models to present some very interesting formulae for the bounds under the affine set up. Numerical examples are furnished and benchmarked against Monte Carlo simulations to estimate the price of a GAO for a variety of affine processes governing the evolution of mortality and the interest rate.

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