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Randomization and the valuation of guaranteed minimum death benefits

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  • Deelstra, Griselda
  • Hieber, Peter

Abstract

In this article, we focus on death-linked contingent claims (GMDBs) paying a random financial return at a random time of death in the general case where financial returns follow a regime switching model with two-sided phase-type jumps. We approximate the distribution of the remaining lifetime by either a series of Erlang distributions or a Laguerre series expansion, whose capability to fit the tail of the observed mortality data turns out to be much better than the commonly used series of exponential distributions.

Suggested Citation

  • Deelstra, Griselda & Hieber, Peter, 2023. "Randomization and the valuation of guaranteed minimum death benefits," European Journal of Operational Research, Elsevier, vol. 309(3), pages 1218-1236.
    • Handle: RePEc:eee:ejores:v:309:y:2023:i:3:p:1218-1236
    DOI: 10.1016/j.ejor.2023.01.059
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    More about this item

    Keywords

    Risk analysis; Variable annuities; Erlangization; Regime switching; Phase-type distributions;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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