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Variable annuities: A unifying valuation approach

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  • Bacinello, Anna Rita
  • Millossovich, Pietro
  • Olivieri, Annamaria
  • Pitacco, Ermanno

Abstract

Life annuities and pension products usually involve a number of guarantees, such as minimum accumulation rates, minimum annual payments or a minimum total payout. Packaging different types of guarantees is the feature of so-called variable annuities. Basically, these products are unit-linked investment policies providing a post-retirement income. The guarantees, commonly referred to as GMxBs (namely, Guaranteed Minimum Benefits of type ‘x’), include minimum benefits both in the case of death and survival. In this paper we propose a unifying framework for the valuation of variable annuities under quite general model assumptions. We compute and compare contract values and fair fee rates under ‘static’ and ‘mixed’ valuation approaches, via ordinary and least squares Monte Carlo methods, respectively.

Suggested Citation

  • Bacinello, Anna Rita & Millossovich, Pietro & Olivieri, Annamaria & Pitacco, Ermanno, 2011. "Variable annuities: A unifying valuation approach," Insurance: Mathematics and Economics, Elsevier, vol. 49(3), pages 285-297.
    • Handle: RePEc:eee:insuma:v:49:y:2011:i:3:p:285-297
    DOI: 10.1016/j.insmatheco.2011.05.003
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    References listed on IDEAS

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