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Two-phase selection of representative contracts for valuation of large variable annuity portfolios

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  • Jiang, Ruihong
  • Saunders, David
  • Weng, Chengguo

Abstract

A computationally appealing methodology for the valuation of large variable annuities portfolios is a metamodelling framework that evaluates a small set of representative contracts, fits a predictive model based on these computed values, and then extrapolates the model to estimate the values of the remaining contracts. This paper proposes a new two-phase procedure for selecting representative contracts. The representatives from the first phase are determined using contract attributes as in existing metamodelling approaches, but those in the second phase are chosen by utilizing the information contained in the values of the representatives from the first phase. Two numerical studies confirm that our two-phase selection procedure improves upon conventional approaches from the existing literature.

Suggested Citation

  • Jiang, Ruihong & Saunders, David & Weng, Chengguo, 2023. "Two-phase selection of representative contracts for valuation of large variable annuity portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 293-309.
    • Handle: RePEc:eee:insuma:v:113:y:2023:i:c:p:293-309
    DOI: 10.1016/j.insmatheco.2023.08.009
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    More about this item

    Keywords

    Variable annuity portfolio; Clustering; Kriging; Conditional k-means; Mini-batch k-means; Two-phase selection;
    All these keywords.

    JEL classification:

    • C31 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Cross-Sectional Models; Spatial Models; Treatment Effect Models; Quantile Regressions; Social Interaction Models
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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