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Variable annuities: Market incompleteness and policyholder behavior

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  • Moenig, Thorsten

Abstract

Variable annuities (VAs) are popular personal savings and investment vehicles with long-term guarantees. They include various exercise-dependent features, and the pricing, valuation and hedging of the guarantees depend critically on the investors’ decision making. I study whether the optimal exercise behavior of a VA investor is affected by market incompleteness, which arises since the VA generates payout profiles that intersect financial risk and idiosyncratic mortality risk and can thus not be (fully) replicated with traditional financial and insurance products.

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  • Moenig, Thorsten, 2021. "Variable annuities: Market incompleteness and policyholder behavior," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 63-78.
    • Handle: RePEc:eee:insuma:v:99:y:2021:i:c:p:63-78
    DOI: 10.1016/j.insmatheco.2021.03.007
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    More about this item

    Keywords

    Variable annuities; Optimal policyholder behavior; Market incompleteness; Lifecycle utility model; Guaranteed minimum withdrawal benefits;
    All these keywords.

    JEL classification:

    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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