DEAMS Research Paper Series 2021, 2

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Anna Rita Bacinello, Pietro Millossovich, Fabio Viviano

An Efficient Monte Carlo Based Approach for the Simulation of Future Annuity Values

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    An Efficient Monte Carlo Based Approach for the Simulation of Future Annuity Values
    (EUT Edizioni Università di Trieste, 2021)
    BACINELLO, ANNA RITA
    ;
    MILLOSSOVICH, PIETRO
    ;
    VIVIANO, FABIO
    In this paper we propose a methodology for valuing future annuity contracts based on the Least-Squares Monte Carlo approach. We adopt, as first step, a simplified computational framework where just one risk factor is taken into account, and then we extend it introducing other sources of risk. We give a brief description of the valuation procedure and provide some numerical illustrations. Furthermore, to test the efficiency of the proposed methodology, we compare our results with those obtained by applying a straightforward and time-consuming approach based on nested simulations. Finally, we present some possible applications in the context of de-risking strategies for pension plans and in the valuation of guaranteed annuity options.
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