Evaluating Variable Annuities with GMWB When Exogenous Factors Influence the Policy-Holder Withdrawals

Massimo Costabile (), Ivar Massabó and Emilio Russo
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Massimo Costabile: University of Calabria, Department of Economics, Statistics, and Finance
Ivar Massabó: University of Calabria, Department of Economics, Statistics, and Finance
Emilio Russo: University of Calabria, Department of Economics, Statistics, and Finance

A chapter in Mathematical and Statistical Methods for Actuarial Sciences and Finance, 2018, pp 267-271 from Springer

Abstract: Abstract We propose a model for evaluating variable annuities with guaranteed minimum withdrawal benefits in which a rational policy-holder, who would withdraw the optimal amounts maximizing the current policy value only with respect to the endogenous variables of the evaluation problem, acts in a more realistic context where her/his choices may be influenced by exogenous variables that may lead to withdraw sub-optimal amounts. The model is based on a trinomial approximation of the personal sub-account dynamics that, despite the presence of a downward jump due to the payed withdrawal at each anniversary of the contract, guarantees the reconnecting property. A backward induction scheme is used to compute the insurance fair fee paid for the guarantee.

Keywords: Variable annuity; Guaranteed minimum withdrawal benefits; Trinomial tree (search for similar items in EconPapers)
Date: 2018
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-319-89824-7_48

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DOI: 10.1007/978-3-319-89824-7_48

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