The time of deducting fees for variable annuities under the state-dependent fee structure

Zhou, Jiang; Wu, Lan

doi:10.1016/j.insmatheco.2014.12.008

Cited by 14 publications

(25 citation statements)

References 25 publications

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“…However, we find that these minimal surrender penalties are generally too high to lead to a marketable VA product. To address this issue, we consider the state‐dependent fee structure introduced by Bernard, Hardy, and MacKay (), where the fee is paid to the insurer only when the account value is below a certain threshold (see also Delong, ; Moenig and Zhu, ; Zhou and Wu, ) 5 . The motivation is the following: since the state‐dependent fee structure reduces the incentive to lapse the VA contract, it can be combined with smaller surrender charges to achieve our goal of removing the surrender incentive.…”

Section: Introductionmentioning

confidence: 99%

Risk Management of Policyholder Behavior in Equity‐Linked Life Insurance

MacKay¹,

Augustyniak²,

Bernard³

et al. 2015

J of Risk & Insurance

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The financial guarantees embedded in variable annuity contracts expose insurers to a wide range of risks, lapse risk being one of them. When policyholders' lapse behavior differs from the assumptions used to hedge variable annuity contracts, the effectiveness of dynamic hedging strategies can be significantly impaired. By studying how the fee structure and surrender charges affect surrender incentives, we obtain new theoretical results on the optimal surrender region and use them to design a marketable contract that is never optimal to lapse.

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Section: Introductionmentioning

confidence: 99%

Risk Management of Policyholder Behavior in Equity‐Linked Life Insurance

MacKay¹,

Augustyniak²,

Bernard³

et al. 2015

J of Risk & Insurance

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“…The technique used in the above three 8 papers involves two steps. First, the authors consider the case that X is a spectrally negative Lévy process with bounded 9 variation. Then they obtain the corresponding results for the case of X with unbounded variation by using an approximation 10 argument.…”

Section: Introductionmentioning

confidence: 99%

“…Then they obtain the corresponding results for the case of X with unbounded variation by using an approximation 10 argument. 11 Recently, in Zhou and Wu (2015), we considered a processÛ that is defined by…”

Section: Introductionmentioning

confidence: 99%

“…Under the assumption that X in (1.2) is a hyper-exponential jump diffusion process, 16 we established a novel approach to derive formulas for the Laplace transform of  t 0 1 {Û s <b} ds with respect to t. Then, we 17 modified the approach in Zhou and Wu (2015) to investigate a similar question in Wu and Zhou (2015), where the process 1 X in (1.2) is generalized to a jump diffusion process with jumps having rational Laplace transform. 2 In this paper, we use a similar method to that in Zhou and Wu (2015) to consider the joint Laplace transforms of…”

Section: Introductionmentioning

confidence: 99%

“…

a b s t r a c tWe adopt a similar approach to that in Zhou and Wu (2015) to investigate the problem of computing the occupation times of a refracted double exponential jump diffusion process. For such a process, we derive formulas for the Laplace transform of its occupation times.

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confidence: 99%

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Occupation times of refracted double exponential jump diffusion processes

Zhou

2015

Statistics & Probability Letters

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Variable annuities with a threshold fee: valuation, numerical implementation and comparative static analysis

Bacinello

Zoccolan²

2019

Decisions Econ Finan

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In this paper we deal with a variable annuity which provides guarantees at death and maturity financed through the application of a state-dependent fee structure of the threshold type. Our first aim is to test the use of least squares Monte Carlo methods (LSMC) for the numerical implementation of the valuation model. In fact, special care is needed when applying LSMC, due to the shape of the surrender region. To this end we introduce a quite general framework, under which we derive a theoretical result that allows us to stem the numerical errors arising in the regression step of the valuation algorithm. The second aim of the paper is to analyse numerically the interaction between the various contract components, in particular fee rates/thresholds and surrender penalties, under alternative policyholder behaviours. This analysis turns out to be very useful, in particular when addressing the problem of the contract design.

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The time of deducting fees for variable annuities under the state-dependent fee structure

Cited by 14 publications

References 25 publications

Risk Management of Policyholder Behavior in Equity‐Linked Life Insurance

Risk Management of Policyholder Behavior in Equity‐Linked Life Insurance

Occupation times of refracted double exponential jump diffusion processes

Variable annuities with a threshold fee: valuation, numerical implementation and comparative static analysis

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