Efficient valuation of a variable annuity contract with a surrender option

DOI10.1007/S13160-019-00401-2MaRDI QIDQ2300964zbMATH OpenOpenAlexWikidataFDO

Authors Junkee Jeon, Geonwoo Kim

Publication date 28 February 2020

Published in Japan Journal of Industrial and Applied Mathematics (Search for Journal in Brave)

Full work available at URL https://doi.org/10.1007/s13160-019-00401-2

zbMATH Keywords

Laplace-Carson transformnumerical Laplace inversionoptimal surrendervariable annuity

Mathematics Subject Classification ID

PDEs in connection with game theory, economics, social and behavioral sciences (35Q91) Laplace transform (44A10) Actuarial mathematics (91G05) Numerical methods (including Monte Carlo methods) (91G60) Financial applications of other theories (91G80)

Review text

The paper focuses on variable annuty (VA) contracts with a surrender option, and provides a valuation method. After describing the valuation model of a VA contract, the pricing formula is obtained by means of of a Laplace-Carson transform approach. The numerical examples clarify the applied potential of the proposed model and demonstrate its efficiency, also compared to other evaluation schemes.

Recommendations

• Optimal surrender strategies and valuations of path-dependent guarantees in variable annuities
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• Valuing variable annuities with path-dependent surrender guarantees under regime-switching Lévy models

Cites work

• A simple and fast method for valuing American knock-out options with rebates
• A Universal Pricing Framework for Guaranteed Minimum Benefits in Variable Annuities
• An operational calculus for probability distributions via Laplace transforms
• Analytic solution for American strangle options using Laplace-Carson transforms
• Numerical Inversion of Laplace Transforms of Probability Distributions
• On convergence of Laplace inversion for the American put option under the CEV model
• Optimal surrender policy for variable annuity guarantees
• Optimal surrender strategies and valuations of path-dependent guarantees in variable annuities
• Optimizing Talbot’s Contours for the Inversion of the Laplace Transform
• Randomization and the American put
• The Accurate Numerical Inversion of Laplace Transforms
• Valuation of guaranteed minimum maturity benefits in variable annuities with surrender options
• Valuing American options under the CEV model by Laplace-Carson transforms
• Valuing continuous-installment options
• Valuing finite-lived Russian options

Cited in

(8)

• Optimal surrender strategies and valuations of path-dependent guarantees in variable annuities
• Variable annuity with a surrender option under multiscale stochastic volatility
• A dimension-reduction algorithm for the valuation of surrender options in EIA contracts with stochastic interest rates
• Valuation of guaranteed minimum maturity benefits in variable annuities with surrender options
• A comparison between different numerical schemes for the valuation of unit-linked contracts embedding a surrender option
• VALUATION OF GUARANTEED ANNUITY OPTIONS IN AFFINE TERM STRUCTURE MODELS
• Valuing variable annuities with path-dependent surrender guarantees under regime-switching Lévy models
• Variational inequality arising from variable annuity with mean reversion environment

Describes a project that uses

Uses Software

• Algorithm 368

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