Optimal Surrender Policy for Variable Annuity Guarantees
32 Pages Posted: 11 Nov 2013 Last revised: 31 Jan 2014
Date Written: January 20, 2014
Abstract
This paper proposes a technique to derive the optimal surrender strategy for a variable annuity (VA) as a function of the underlying fund value. This approach is based on splitting the value of the VA into a European part and an early exercise premium following the work of Kim and Yu (1996) and Carr, Jarrow and Myneni (1992). The technique is first applied to the simplest VA with GMAB (path-independent benefits) and is then shown to be possibly generalized to the case when benefits are path-dependent. Fees are paid continuously as a fixed percentage of the fund value. Our approach is useful to investigate the impact of path-dependent benefits on surrender incentives.
Keywords: Variable annuities, Optimal surrender, GMMB, GMSB
JEL Classification: G13, G22
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Fair Value of Guaranteed Annuity Options
By Enrico Biffis and Pietro Millossovich
-
Regression-Based Algorithms for Life Insurance Contracts with Surrender Guarantees
By Anna Rita Bacinello, Enrico Biffis, ...
-
Pricing Life Insurance Contracts with Early Exercise Features
By Anna Rita Bacinello, Enrico Biffis, ...
-
By Jing Li and Alexander Szimayer
-
State-Dependent Fees for Variable Annuity Guarantees
By Carole Bernard, Mary R. Hardy, ...
-
A Note on Stochastic Survival Probabilities and Their Calibration
By Elisa Luciano and Elena Vigna
-
Variable Annuities: Risk Identification and Risk Assessment
By Anna Rita Bacinello, Annamaria Olivieri, ...