IDEAS home Printed from https://ideas.repec.org/p/arx/papers/1110.4516.html
   My bibliography  Save this paper

Calculating Variable Annuity Liability 'Greeks' Using Monte Carlo Simulation

Author

Listed:
  • Mark J. Cathcart
  • Steven Morrison
  • Alexander J. McNeil

Abstract

Hedging methods to mitigate the exposure of variable annuity products to market risks require the calculation of market risk sensitivities (or "Greeks"). The complex, path-dependent nature of these products means these sensitivities typically must be estimated by Monte Carlo simulation. Standard market practice is to measure such sensitivities using a "bump and revalue" method. As well as requiring multiple valuations, such approaches can be unreliable for higher order Greeks, e.g., gamma. In this article we investigate alternative estimators implemented within an advanced economic scenario generator model, incorporating stochastic interest-rates and stochastic equity volatility. The estimators can also be easily generalized to work with the addition of equity jumps in this model.

Suggested Citation

  • Mark J. Cathcart & Steven Morrison & Alexander J. McNeil, 2011. "Calculating Variable Annuity Liability 'Greeks' Using Monte Carlo Simulation," Papers 1110.4516, arXiv.org.
  • Handle: RePEc:arx:papers:1110.4516
    as

    Download full text from publisher

    File URL: http://arxiv.org/pdf/1110.4516
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Mark Broadie & Paul Glasserman, 1996. "Estimating Security Price Derivatives Using Simulation," Management Science, INFORMS, vol. 42(2), pages 269-285, February.
    2. Rajan Suri & Michael A. Zazanis, 1988. "Perturbation Analysis Gives Strongly Consistent Sensitivity Estimates for the M/G/1 Queue," Management Science, INFORMS, vol. 34(1), pages 39-64, January.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1110.4516. 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: (arXiv administrators). General contact details of provider: http://arxiv.org/ .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.