Variable Annuities with VIX-Linked Fee Structure under a Heston-Type Stochastic Volatility Model

Cui, Zhenyu; Feng, Runhuan; MacKay, Anne

doi:10.1080/10920277.2017.1307765

Cited by 36 publications

(38 citation statements)

References 26 publications

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“…The two former models have been popularized in actuarial science by Hardy (2001) and the Canadian Institute of Actuaries (2002). The latter class of models received increasing attention from actuaries and has recently been used in academic studies (e.g., Cui et al, 2017;Bégin, 2020).…”

Section: Stock Index Returnsmentioning

confidence: 99%

On Complex Economic Scenario Generators: Is Less More?

Bégin¹

2021

ASTIN Bull.

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This article proposes a complex economic scenario generator that nests versions of well-known actuarial frameworks. The generator estimation relies on the Bayesian paradigm and accounts for both model and parameter uncertainty via Markov chain Monte Carlo methods. So, to the question is less more?, we answer maybe, but it depends on your criteria. From an in-sample fit perspective, on the one hand, a complex economic scenario generator seems better. From the conservatism, forecasting and coverage perspectives, on the other hand, the situation is less clear: having more complex models for the short rate, term structure and stock index returns is clearly beneficial. However, that is not the case for inflation and the dividend yield.

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Section: Stock Index Returnsmentioning

confidence: 99%

On Complex Economic Scenario Generators: Is Less More?

Bégin¹

2021

ASTIN Bull.

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“…Considering stochastic interest rates, Lin and Tan (2003) and Kijima and Wong (2007) proposed a valuation approach for equity-indexed annuities. To insure that VA contracts remain profitable for the policyholder and the issuer, Bernard et al (2014), Cui et al (2017), Bernard and Moenig (2019) and Landriault et al (2021) incorporated different fee structures into the pricing framework. In addition to the pricing issue associated with the financial approach, researchers have also investigated the fair valuation of equity-linked insurance with regard to the level of solvency capital required (see e.g., Hardy (2003); Barbarin and Devolder (2005) and Feng and Volkmer ( 2012)).…”

Section: Introductionmentioning

confidence: 99%

Valuation of Annuity Guarantees Under a Self-Exciting Switching Jump Model

Leunga

Hainaut

2022

Methodol Comput Appl Probab

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This article investigates the valuation of annuity guarantees under a regime-switching model when the dynamics of the underlying stock price follow a self-exciting switching jump-diffusion process. In this framework, we add a jump component to a regime-switching geometric Brownian for large shocks on the stock price. The intensity of shock arrivals is a Hawkes process modulated by a continuous time hidden Markov chain with a finite number of states. The interest rate used for discounting is stochastic and correlated to the stock market. In an incomplete market, we define an equivalent martingale measure to price a variable annuity contract that guarantees a minimum living or death benefit. Under this equivalent martingale measure, we propose closed-form approximation formulas using the inverse Fourier transform technique. A numerical implementation highlights the impact of self-exciting jumps and economic regimes on the valuation of guarantees.

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“…This fee structure is shown to reduce insurance fees while keeping the VA contract profitable to insurers. To manage the volatility risk, Cui et al (2017) consider a volatility index (VIX)-linked fee structure in a Heston-type stochastic volatility setting. It is demonstrated that, compared to the constant fee structure, the VIX-linked fee structure lowers the sensitivity of insurers' liabilities to market volatility.…”

Section: Introductionmentioning

confidence: 99%

High‐water mark fee structure in variable annuities

Landriault

et al. 2021

J of Risk & Insurance

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This paper proposes a novel high-water mark fee structure and investigates its impact on the marketability of variable annuities. To evaluate the welfare effects of holding a variable annuity, we adopt meanvariance analysis. By also examining the welfare effects of holding two alternative investments, we introduce a quantitative measure, namely a compatible set of risk aversions, to assess the marketability of the variable annuity under a certain fee structure. Comparing the compatible sets and the welfare effects of holding the variable annuity under the high-water mark fee structure with those under a constant and a statedependent fee structure, we find that the high-water mark fee structure improves the variable annuity's marketability in two aspects: First, it makes the variable annuity preferable to the alternative investments for a broader range of policyholders. Second, when the variable annuity is preferred over the alternative investments, it produces the highest welfare for the policyholder.

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Variable Annuities with VIX-Linked Fee Structure under a Heston-Type Stochastic Volatility Model

Cited by 36 publications

References 26 publications

On Complex Economic Scenario Generators: Is Less More?

On Complex Economic Scenario Generators: Is Less More?

Valuation of Annuity Guarantees Under a Self-Exciting Switching Jump Model

High‐water mark fee structure in variable annuities

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