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Variable Annuities with State-Dependent Fees: Valuation, Numerical Implementation, Comparative Static Analysis and Model Risk
Bacinello, Anna Rita
Zoccolan, Ivan
2017
Abstract
In this paper we consider a variable annuity which provides guarantees at death and maturity financed through the application of a state-dependent fee structure, as defined first in Bae and Ko (2013) and extensively analysed in Bernard et al. (2014) and MacKay
et al. (2017). We propose a quite general valuation model for such guarantees, along the
lines of Bacinello et al. (2011). We then analyse numerically the interaction between fee
rates, death/maturity guarantees, fee thresholds and surrender penalties under alternative model assumptions and policy holder behaviours. This allows us to get also some
interesting insights into the model risk. Since the assumptions adopted in the numerical
analysis are not at all trivial, we resort to Monte Carlo and Least Squares Monte Carlo methods of LSMC valuation algorithm.
Series
DEAMS Research Paper Series 2017, 1
Publisher
EUT Edizioni Università di Trieste
Source
Anna Rita Bacinello, Ivan Zoccolan, "Variable Annuities with State-Dependent Fees: Valuation, Numerical Implementation, Comparative Static Analysis and Model Risk", Trieste, EUT Edizioni Università degli Studi di Trieste, 2017, 33 p.
Languages
en