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Comonotonic Approximations of Risk Measures for Variable Annuity Guaranteed Benefits with Dynamic Policyholder Behavior

Author

Listed:
  • Runhuan Feng

    (University of Illinois at Urbana-Champaign, United States)

  • Xiaochen Jing

    (University of Illinois at Urbana-Champaign, United States)

  • Jan Dhaene

    (Katholieke Universiteit Leuven, Belgium)

Abstract

The computation of various risk metrics is essential to the quantitative risk management of variable annuity guaranteed bene ts. The current market practice of Monte Carlo simulation often requires intensive computations, which can be very costly for insurance companies to implement and take so much time that they cannot obtain information and take actions in a timely manner. In an attempt to nd low-cost and ecient alternatives, we explore the techniques of comonotonic bounds to produce closed-form approximation of the risk measures for variable annuity guaranteed bene ts. The techniques are further developed in this paper to address in a systematic way risk measures for death bene ts with the consideration of dynamic policyholder behavior.

Suggested Citation

  • Runhuan Feng & Xiaochen Jing & Jan Dhaene, 2015. "Comonotonic Approximations of Risk Measures for Variable Annuity Guaranteed Benefits with Dynamic Policyholder Behavior," Tinbergen Institute Discussion Papers 15-008/IV/DSF85, Tinbergen Institute.
    • Handle: RePEc:tin:wpaper:20150008
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    References listed on IDEAS

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    Cited by:

    1. Jin Sun & Pavel V. Shevchenko & Man Chung Fung, 2018. "The Impact of Management Fees on the Pricing of Variable Annuity Guarantees," Risks, MDPI, vol. 6(3), pages 1-20, September.
    2. Raj Kumari Bahl & Sotirios Sabanis, 2017. "General Price Bounds for Guaranteed Annuity Options," Papers 1707.00807, arXiv.org.

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    More about this item

    Keywords

    Variable annuity guaranteed benefit; risk measures; value at risk; conditional tail expectation; geometric Brownian motion; comonotonicity; dynamic policyholder behavior;
    All these keywords.

    JEL classification:

    • G19 - Financial Economics - - General Financial Markets - - - Other
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques

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