Indifference fee rate for variable annuities

Etienne Chevalier (), Thomas Lim () and Ricardo Romo Roméro
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Etienne Chevalier: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique
Thomas Lim: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique
Ricardo Romo Roméro: LaMME - Laboratoire de Mathématiques et Modélisation d'Evry - INRA - Institut National de la Recherche Agronomique - UEVE - Université d'Évry-Val-d'Essonne - CNRS - Centre National de la Recherche Scientifique

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Abstract: In this paper, we work on indifference valuation of variable annuities and give a computation method for indifference fees. We focus on the guaranteed minimum death benefits and the guaranteed minimum living benefits and allow the policyholder to make withdrawals. We assume that the fees are continuously payed and that the fee rate is fixed at the beginning of the contract. Following indifference pricing theory, we define indifference fee rate for the insurer as a solution of an equation involving two stochastic control problems. Relating these problems to backward stochastic differential equations with jumps, we provide a verification theorem and give the optimal strategies associated to our control problems. From these, we derive a computation method to get indifference fee rates. We conclude our work with numerical illustrations of indifference fees sensibilities with respect to parameters.

Keywords: Variable annuities; indifference pricing; stochastic control; utility maximization; backward stochastic differential equation (search for similar items in EconPapers)
Date: 2014-07-02
New Economics Papers: this item is included in nep-ore and nep-upt
Note: View the original document on HAL open archive server: https://hal.science/hal-01017157v1
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:hal:wpaper:hal-01017157

DOI: 10.1080/1350486X.2016.1243011

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