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Valuation Perspectives and Decompositions for Variable Annuities with GMWB riders

Title:

Valuation Perspectives and Decompositions for Variable Annuities with GMWB riders

Hyndman, Cody and Wenger, Menachem (2014) Valuation Perspectives and Decompositions for Variable Annuities with GMWB riders. Insurance Mathematics and Economics, 55 . pp. 283-290.

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Official URL: http://dx.doi.org/10.1016/j.insmatheco.2014.02.004

Abstract

The guaranteed minimum withdrawal benefit (GMWB) rider, as an add on to a variable annuity (VA), guarantees the return of premiums in the form of periodic withdrawals while allowing policyholders to participate fully in any market gains. GMWB riders represent an embedded option on the account value with a fee structure that is different from typical financial derivatives. We consider fair pricing of the GMWB rider from a financial economic perspective. Particular focus is placed on the distinct perspectives of the insurer and policyholder and the unifying relationship. We extend a decomposition of the VA contract into components that reflect term-certain payments and embedded derivatives to the case where the policyholder has the option to surrender, or lapse, the contract early.

Divisions:Concordia University > Faculty of Arts and Science > Mathematics and Statistics
Item Type:Article
Refereed:Yes
Authors:Hyndman, Cody and Wenger, Menachem
Journal or Publication:Insurance Mathematics and Economics
Date:March 2014
Funders:
  • NSERC
  • FQRNT
Digital Object Identifier (DOI):10.1016/j.insmatheco.2014.02.004
Keywords:Variable annuity; GMWB; Optimal stopping
ID Code:978351
Deposited By: CODY HYNDMAN
Deposited On:09 Apr 2014 21:37
Last Modified:18 Jan 2018 17:46
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