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Evaluating Variable Annuities with GMWB When Exogenous Factors Influence the Policy-Holder Withdrawals

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

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  • Massimo Costabile

    (University of Calabria, Department of Economics, Statistics, and Finance)

  • Ivar Massabó

    (University of Calabria, Department of Economics, Statistics, and Finance)

  • Emilio Russo

    (University of Calabria, Department of Economics, Statistics, and Finance)

Abstract

We propose a model for evaluating variable annuities with guaranteed minimum withdrawal benefits in which a rational policy-holder, who would withdraw the optimal amounts maximizing the current policy value only with respect to the endogenous variables of the evaluation problem, acts in a more realistic context where her/his choices may be influenced by exogenous variables that may lead to withdraw sub-optimal amounts. The model is based on a trinomial approximation of the personal sub-account dynamics that, despite the presence of a downward jump due to the payed withdrawal at each anniversary of the contract, guarantees the reconnecting property. A backward induction scheme is used to compute the insurance fair fee paid for the guarantee.

Suggested Citation

  • Massimo Costabile & Ivar Massabó & Emilio Russo, 2018. "Evaluating Variable Annuities with GMWB When Exogenous Factors Influence the Policy-Holder Withdrawals," Springer Books, in: Marco Corazza & María Durbán & Aurea Grané & Cira Perna & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 267-271, Springer.
    • Handle: RePEc:spr:sprchp:978-3-319-89824-7_48
    DOI: 10.1007/978-3-319-89824-7_48
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