The impact of policyholder behavior on pricing, hedging, and hedge efficiency of withdrawal benefit guarantees in variable annuities

Kling, Alexander; Ruez, Frederik; Ruß, Jochen

doi:10.1007/s13385-014-0093-0

Cited by 74 publications

(72 citation statements)

References 22 publications

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“…Bacinello et al [5] evaluate variable annuities (including GLWBs) are priced using a Monte Carlo approach. Holz et al [6] and Kling et al [7] used a Monte Carlo approach to price variables annuities products. As Monte Carlo simulation is time consuming for path dependent option, other methods for option pricing would help to increase the computation efficiency of valuation of the guaranteed benefits.…”

Section: Goudenège Et Almentioning

confidence: 99%

Fourier-Cosine Method for Pricing and Hedging Insurance Derivatives

Goudenège¹,

Molent²,

Wei³

et al. 2018

TEL

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Section: Goudenège Et Almentioning

confidence: 99%

Fourier-Cosine Method for Pricing and Hedging Insurance Derivatives

Goudenège¹,

Molent²,

Wei³

et al. 2018

TEL

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show abstract

“…In particular, (risk-neutral) valuation of guarantees in pension saving products has been studied extensively forming one important stream of life insurance literature, including contributions, amongst others, by Briys and de Varenne [1], Grosen and Jørgensen [2,3], Tiong [4], Milevsky and Posner [5], Hansen and Miltersen [6], Gerber and Shiu [7], Hardy [8], Tanskanen and Lukkarinen [9], Barbarin and Devolder [10], Siu [11], Guillé n, Jørgensen, and Nielsen [12], Gatzert and Kling [13], Ledlie et al [14], Branger, Mahayni, and Schneider [15], Dong [16], Kling, Ruez, and Russ [17], Schmeiser and Wagner [18], and Goecke [19]. To evaluate guarantees based on risk-neutral valuation techniques assumes replicability of cash flows, which can be viewed as a realistic assumption for product providers, but rather not for customers.…”

Section: Open Accessmentioning

confidence: 99%

The Impact of Guarantees on the Performance of Pension Saving Schemes: Insights from the Literature

Bohnert

2015

Risks

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Guarantees are often seen as the key characteristics of pension saving products, but securing them can become costly and is of central relevance especially in the course of the current low interest rate environment. In this article, we deal with the question of how costly the typical types of guarantees are, in the sense that they reduce a pension saving scheme's financial performance over time. In this context, we aim to provide a presentation of insights from selected literature studying the impact of point-to-point guarantees and cliquet-style interest rate guarantees on the performance of pension contracts. The comparative analysis emphasizes that, in most cases, guarantee costs are not negligible with regard to a contract's financial performance, especially compared to benchmarks, and that customers knowingly opt for such guarantees (or not) is, thus, indispensable. To further investigate the willingness-to-pay for guarantees in life insurance is an area for future research, in particular for innovative contract design.

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“…It also becomes worse to the issuer since the withdrawal guarantee kicks in. Under the simplified assumption of deterministic surrender rates, Kling et al (2013) consider the model risks taken up by the insurer when constant equity volatilities are assumed for hedging purposes. They find that the fair values of the guarantees do not show significant change under either constant or stochastic volatility models.…”

Section: Introductionmentioning

confidence: 99%

Regression-based Monte Carlo methods for stochastic control models: variable annuities with lifelong guarantees

Huang

Kwok

2015

Quantitative Finance

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We present the regression-based Monte Carlo simulation algorithms for solving the stochastic control models associated with pricing and hedging of the Guaranteed Lifelong Withdrawal Benefit (GLWB) in variable annuities, where the dynamics of the underlying fund value is assumed to evolve according to the stochastic volatility model. The GLWB offers a lifelong withdrawal benefit even when the policy account value becomes zero while the policyholder remains alive. Upon death, the remaining account value will be paid to the beneficiary as a death benefit. The bang-bang control strategy analyzed under the assumption of maximization of the policyholder's expected cash flow reduces the strategy space of optimal withdrawal policies to three choices: zero withdrawal, withdrawal at the contractual amount or complete surrender. The impact on the GLWB value under various withdrawal behaviors of the policyholder is examined. We also analyze the pricing properties of GLWB subject to different model parameter values and structural features.JEL classification: G22, C50

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The impact of policyholder behavior on pricing, hedging, and hedge efficiency of withdrawal benefit guarantees in variable annuities

Cited by 74 publications

References 22 publications

Fourier-Cosine Method for Pricing and Hedging Insurance Derivatives

Fourier-Cosine Method for Pricing and Hedging Insurance Derivatives

The Impact of Guarantees on the Performance of Pension Saving Schemes: Insights from the Literature

Regression-based Monte Carlo methods for stochastic control models: variable annuities with lifelong guarantees

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