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Efficient pricing and Greeks estimation for variable annuities under a multivariate OUSV model

Author

Listed:
  • Chen, Shaoying
  • Cui, Zhenyu
  • Yang, Yang
  • Zhang, Zhimin

Abstract

As the understanding of GMxB-related risks deepens, insurance companies are increasingly seeking efficient annuity risk management systems. This paper is the first to extend the Karhunen-Loève (KL) expansion method to the pricing and Greeks estimation of the GMxB variable annuities written on multiple sub-account funds, under the multivariate Ornstein-Uhlenbeck stochastic volatility model. Additionally, the simulation-based pathwise (PW) and likelihood ratio (LR) methods are generalized for efficient Greeks computation within the multi-asset annuity framework. Through asymptotic analysis, we address a theoretical gap in the original KL expansion sampling framework. Numerical experiments demonstrate that the proposed method achieves computational efficiency and robustness, providing a practical and reliable framework for the risk management of complex multi-asset variable annuities.

Suggested Citation

  • Chen, Shaoying & Cui, Zhenyu & Yang, Yang & Zhang, Zhimin, 2026. "Efficient pricing and Greeks estimation for variable annuities under a multivariate OUSV model," Insurance: Mathematics and Economics, Elsevier, vol. 127(C).
    • Handle: RePEc:eee:insuma:v:127:y:2026:i:c:s0167668726000107
    DOI: 10.1016/j.insmatheco.2026.103220
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    JEL classification:

    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis
    • 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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