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Variable annuities: A unifying valuation approach

Anna Rita Bacinello, Pietro Millossovich, Annamaria Olivieri and Ermanno Pitacco

Insurance: Mathematics and Economics, 2011, vol. 49, issue 3, 285-297

Abstract: Life annuities and pension products usually involve a number of guarantees, such as minimum accumulation rates, minimum annual payments or a minimum total payout. Packaging different types of guarantees is the feature of so-called variable annuities. Basically, these products are unit-linked investment policies providing a post-retirement income. The guarantees, commonly referred to as GMxBs (namely, Guaranteed Minimum Benefits of type ‘x’), include minimum benefits both in the case of death and survival. In this paper we propose a unifying framework for the valuation of variable annuities under quite general model assumptions. We compute and compare contract values and fair fee rates under ‘static’ and ‘mixed’ valuation approaches, via ordinary and least squares Monte Carlo methods, respectively.

Keywords: Variable annuities; Post-retirement income; Risk management; Guarantees; Least squares Monte Carlo (search for similar items in EconPapers)
Date: 2011
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