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.
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References
Yang, S.S., Dai, T.S.: A flexible tree for evaluating guaranteed minimum withdrawal benefits under deferred life annuity contracts with various provisions. Insur. Math. Econ. 52(2), 231–242 (2013)
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Costabile, M., Massabó, I., Russo, E. (2018). Evaluating Variable Annuities with GMWB When Exogenous Factors Influence the Policy-Holder Withdrawals. In: Corazza, M., Durbán, M., Grané, A., Perna, C., Sibillo, M. (eds) Mathematical and Statistical Methods for Actuarial Sciences and Finance. Springer, Cham. https://doi.org/10.1007/978-3-319-89824-7_48
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DOI: https://doi.org/10.1007/978-3-319-89824-7_48
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