Advanced Search
MyIDEAS: Login

Valuing the Guaranteed Minimum Death Benefit Clause with Partial Withdrawals

Contents:

Author Info

  • A. C. Belanger
  • P. A. Forsyth
  • G. Labahn
Registered author(s):

    Abstract

    In this paper, we give a method for computing the fair insurance fee associated with the guaranteed minimum death benefit (GMDB) clause included in many variable annuity contracts. We allow for partial withdrawals, a common feature in most GMDB contracts, and determine how this affects the GMDB fair insurance charge. Our method models the GMDB pricing problem as an impulse control problem. The resulting quasi-variational inequality is solved numerically using a fully implicit penalty method. The numerical results are obtained under both constant volatility and regime-switching models. A complete analysis of the numerical procedure is included. We show that the discrete equations are stable, monotone and consistent and hence obtain convergence to the unique, continuous viscosity solution, assuming this exists. Our results show that the addition of the partial withdrawal feature significantly increases the fair insurance charge for GMDB contracts.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.tandfonline.com/doi/abs/10.1080/13504860903075464
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Bibliographic Info

    Article provided by Taylor & Francis Journals in its journal Applied Mathematical Finance.

    Volume (Year): 16 (2009)
    Issue (Month): 6 ()
    Pages: 451-496

    as in new window
    Handle: RePEc:taf:apmtfi:v:16:y:2009:i:6:p:451-496

    Contact details of provider:
    Web page: http://www.tandfonline.com/RAMF20

    Order Information:
    Web: http://www.tandfonline.com/pricing/journal/RAMF20

    Related research

    Keywords: Variable annuities; guaranteed minimum death benefit (GMDB); viscosity solution; impulse control; fully implicit penalty method;

    References

    No references listed on IDEAS
    You can help add them by filling out this form.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as in new window

    Cited by:
    1. Gao, Jin & Ulm, Eric R., 2012. "Optimal consumption and allocation in variable annuities with Guaranteed Minimum Death Benefits," Insurance: Mathematics and Economics, Elsevier, vol. 51(3), pages 586-598.
    2. Wang, J. & Forsyth, P.A., 2010. "Numerical solution of the Hamilton-Jacobi-Bellman formulation for continuous time mean variance asset allocation," Journal of Economic Dynamics and Control, Elsevier, vol. 34(2), pages 207-230, February.
    3. Gan, Guojun, 2013. "Application of data clustering and machine learning in variable annuity valuation," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 795-801.

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:taf:apmtfi:v:16:y:2009:i:6:p:451-496. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Michael McNulty).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.