2020
DOI: 10.1017/asb.2020.29
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Taxation of a GMWB Variable Annuity in a Stochastic Interest Rate Model

Abstract: Modeling taxation of Variable Annuities has been frequently neglected, but accounting for it can significantly improve the explanation of the withdrawal dynamics and lead to a better modeling of the financial cost of these insurance products. The importance of including a model for taxation has first been observed by Moenig and Bauer (2016) while considering a Guaranteed Minimum Withdrawal Benefit (GMWB) Variable Annuity. In particular, they consider the simple Black–Scholes dynamics to describe the underlying… Show more

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Cited by 2 publications
(3 citation statements)
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“…General variations in financial and economic behavior and generalized global factors influencing it have been studied in detail by scholars, linking them to tax burdens (Molent, 2020). However, Lois P., Drogalas G., Karagiorgos A. and Karasteriou E. note the emergence of the phenomenon of unpredictable financial behavior, which is expressed in tax evasion due to undeclared employment (Lois, Drogalas, Karagiorgos, Karasteriou, 2020).…”
Section: Literature Reviewmentioning
confidence: 99%
“…General variations in financial and economic behavior and generalized global factors influencing it have been studied in detail by scholars, linking them to tax burdens (Molent, 2020). However, Lois P., Drogalas G., Karagiorgos A. and Karasteriou E. note the emergence of the phenomenon of unpredictable financial behavior, which is expressed in tax evasion due to undeclared employment (Lois, Drogalas, Karagiorgos, Karasteriou, 2020).…”
Section: Literature Reviewmentioning
confidence: 99%
“…To attract investors, variable annuities are often incorporated with additional features, among which Guaranteed Minimum Withdrawal Benefits (GMWBs) are popular. Since first introduced in the early 2000's, GBMWs have captured great attention from both industry and academia alike, as evidenced by a substantial and growing body of literature; see [61,17,19,22,6,42,44,45,29,37,40,62,4,83,1,65,43,57], among many other publications.…”
Section: Introductionmentioning
confidence: 99%
“…Under a discrete withdrawal scenario, fair prices and insurance fees are found to be remarkably sensitive to interest rates, in particular, in the case of (instantaneous) short-rate dynamics, such as the Vasicek model [66,75], the Hull-White [30,37,38,55], and the the Cox-Ingersoll-Ross model [6,40]. Substantial impact of short-rate dynamics on the holder's optimal withdrawal behavior is recently reported in [62]. We highlight that the combined effects of jumps and stochastic interest rate in the context of GMWBs have not been previously studied in the literature.…”
Section: Introductionmentioning
confidence: 99%