Comonotonic approximations of risk measures for variable annuity guaranteed benefits with dynamic policyholder behavior

Runhuan Feng, Xiaochen Jing and Jan Dhaene

No 485229, Working Papers Department of Accountancy, Finance and Insurance (AFI), Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Accountancy, Finance and Insurance (AFI), Leuven

Abstract: The computation of various risk metrics is essential to the quantitative risk management of variable annuity guaranteed benefits. The current market practice of Monte Carlo simulation often requires intensive computations, which can be very costly for insurance companies to implement and take so much time that they cannot obtain information and take actions in a timely manner. In an attempt to find low-cost and efficient alternatives, we explore the techniques of comonotonic bounds to produce closed-form approximation of the risk measures for variable annuity guaranteed benefits. The techniques are further developed in this paper to address in a systematic way risk measures for death benefits with the consideration of dynamic policyholder behavior.

Keywords: variable annuity guaranteed benefit; risk measures; value at risk; conditional tail expectation; geometric Brownian motion; comonotonicity; dynamic policyholder behavior (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

Published in FEB Research Report AFI_1598

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