Impact of Flexible Periodic Premiums on Variable Annuity Guarantees

Bernard, Carole; Cui, Zhenyu; Vanduffel, Steven

doi:10.2139/ssrn.2739145

Cited by 4 publications

(4 citation statements)

References 27 publications

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“…By letting w t be negative, we can use it to represent deposits made in the VA account by the investor. This type of deposits are known as flexible premiums, and are discussed in Chi and Lin (2012) and Bernard et al (2017). Although we do not focus on them here, the results we present in this paper can easily be used to price guarantees on VAs with flexible premiums.…”

Section: Financial Model and Variable Annuity Contractmentioning

confidence: 99%

VIX-linked fees for GMWBs via explicit solution simulation methods

Kouritzin

MacKay

2018

Insurance: Mathematics and Economics

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In a market with stochastic volatility and jumps, we consider a VIX-linked fee structure (see Cui et al. (2017)) for variable annuity contracts with guaranteed minimum withdrawal benefits (GMWB). Our goal is to assess the effectiveness of the VIXlinked fee structure in decreasing the sensitivity of the insurer's liability to volatility risk. Since the GMWB payoff is highly path-dependent, it is particularly sensitive to volatility risk, and can also be challenging to price, especially in the presence of the VIX-linked fee. In this paper, following Kouritzin (2018), we present an explicit weak solution for the value of the VA account and use it in Monte Carlo simulations to value the GMWB guarantee. Numerical examples are provided to analyze the impact of the VIX-linked fee on the sensitivity of the liability to changes in market volatility.

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Section: Financial Model and Variable Annuity Contractmentioning

confidence: 99%

VIX-linked fees for GMWBs via explicit solution simulation methods

Kouritzin

MacKay

2018

Insurance: Mathematics and Economics

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“…FPVA is a VA with periodical premium payments or instalment during the deferred period or accumulation period (Bernard, Cui, & Vanduffel, 2016;Chi & Lin, 2012). The policyholder makes many payments during the life of the policy (Costabile, 2013).…”

Section: Public Interest Statementmentioning

confidence: 99%

Evaluation of variable annuity guarantees with the effect of jumps in the asset price process

Juma

Lee

Chin

et al. 2017

Cogent Economics & Finance

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Financial crisis in [2007][2008] have caused losses to life insurance companies issuing variable annuities with guarantees. This is partly due to failure of variable annuity (VA) issuers to anticipate the large variations in asset prices during the financial crisis times in their pricing framework and also setting a higher guaranteed rate. This study aims to investigate the pricing of the guaranteed minimum death and accumulation benefits embedded in flexible premium VA. We compare the prices from calibrated Black-Scholes model to that of calibrated jump-diffusion model. Although both models assume constant volatility, the fact that Black-Scholes model ignores abnormal asset price changes due to jumps is likely to under-price the VA. We also conduct a case study to analyse the impact on guarantee fees for different stock market performance and regional mortality rates.

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“…It should be pointed out that the framework can be easily extended to consider risk measures of flexible premium variable annuity, where purchase payments are allowed throughout the accumulation phrase. A related work on the pricing of flexible premium variable annuity is done in Bernard et al (2015). In the recent literature, there have been proposals in the actuarial literature to introduce state-dependent fee rates to replace the constant fee rates in the classical cases, see Delong (2014), Bernard et al (2013).…”

Section: Conclusion and Extensionmentioning

confidence: 99%

Comonotonic approximations of risk measures for variable annuity guaranteed benefits with dynamic policyholder behavior

Feng

Jing

Dhaene

2017

Journal of Computational and Applied Mathematics

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractThe computation of various risk metrics is essential to the quantitative risk management of variable annuity guaranteed benefits. The current market practice of Monte Carlo simulation often requires intensive computations, which can be very costly for insurance companies to implement and take so much time that they cannot obtain information and take actions in a timely manner. In an attempt to find low-cost and efficient alternatives, we explore the techniques of comonotonic bounds to produce closed-form approximation of the risk measures for variable annuity guaranteed benefits. The techniques are further developed in this paper to address in a systematic way risk measures for death benefits with the consideration of dynamic policyholder behavior.

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Impact of Flexible Periodic Premiums on Variable Annuity Guarantees

Cited by 4 publications

References 27 publications

VIX-linked fees for GMWBs via explicit solution simulation methods

VIX-linked fees for GMWBs via explicit solution simulation methods

Evaluation of variable annuity guarantees with the effect of jumps in the asset price process

Comonotonic approximations of risk measures for variable annuity guaranteed benefits with dynamic policyholder behavior

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