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Variable annuities: Market incompleteness and policyholder behavior

Thorsten Moenig

Insurance: Mathematics and Economics, 2021, vol. 99, issue C, 63-78

Abstract: Variable annuities (VAs) are popular personal savings and investment vehicles with long-term guarantees. They include various exercise-dependent features, and the pricing, valuation and hedging of the guarantees depend critically on the investors’ decision making. I study whether the optimal exercise behavior of a VA investor is affected by market incompleteness, which arises since the VA generates payout profiles that intersect financial risk and idiosyncratic mortality risk and can thus not be (fully) replicated with traditional financial and insurance products.

Keywords: Variable annuities; Optimal policyholder behavior; Market incompleteness; Lifecycle utility model; Guaranteed minimum withdrawal benefits (search for similar items in EconPapers)
JEL-codes: G13 G22 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1016/j.insmatheco.2021.03.007

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Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu

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