Valuation of variable long-term care Annuities with Guaranteed Lifetime Withdrawal Benefits: A variance reduction approach

Ming-hua Hsieh, Jennifer L. Wang, Yu-Fen Chiu and Yen-Chih Chen

Insurance: Mathematics and Economics, 2018, vol. 78, issue C, 246-254

Abstract: This paper proposes a new product, the Variable Life Care Annuity with Guaranteed Lifetime Withdrawal Benefits (LCA-GLWB), and designs an efficient valuation algorithm. This innovative product provides a comprehensive retirement solution for both longevity risk and long-term care protection. It includes the benefits of guaranteed income streams with downside risk protection and long-term care expenses for retirees. However, the valuation of this type of product is both complex and time-consuming. In this paper, we propose a Monte Carlo valuation algorithm that uses the variance reduction technique. The numerical results indicate that the proposed valuation algorithm is very efficient under a broad range of asset return models. The proposed algorithm provides a general approach for the rapid valuation of similar products and can help provide life insurance companies offering innovative products with an appropriate valuation tool.

Keywords: Variable annuity; Long-term care; Life Care Annuity; Guaranteed Lifetime Withdrawal Benefit; Variance reduction (search for similar items in EconPapers)
JEL-codes: G22 (search for similar items in EconPapers)
Date: 2018
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:78:y:2018:i:c:p:246-254

DOI: 10.1016/j.insmatheco.2017.09.017

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