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Volume 5
Issue 2
Online publication date 2010-06-08
Title Withdrawal strategy for guaranteed lifelong withdrawal benefit option
Author Gabriella Piscopo
Abstract In this paper we present a price model for the Guaranteed Lifelong Withdrawal Benefit, an option embedded in Variable Annuity policies, which gives the insured the possibility to withdraw from a fund a guaranteed amount annually, even if the account value has fallen below this amount. We calculate the No-arbitrage price of the contract if  policyholders withdraw always the guaranteed amount or they surrender the product when the surrender value exceeds the value of future benefits.
Citation
References
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Bauer, D., Kling, A., Russ, J., 2008. “A universal pricing framework for guaranteed minimum benefit in variable annuities”, ASTIN Bulletin 38 (2), pp.621-51
 
Boyle, P., Schwartz, E., 1977. “Equilibrium prices of guarantees under equity-linked contracts”, Journal of Risk and Insurance 44 (2), pp.639-80

Chen, Z., Vetzal, K., Forsyth, P., 2008. “The effect of modelling parameters on the value of GMWB guaranteed”, Insurance: Mathematics and Economics 43, pp.165-73

Clements, J., 2004. “For a conservative investment, variable annuities are too costly”, Wall Street Journal C1, January 21

Coleman, T., Li, Y., Patron, M., 2006. “Hedging guarantees in variable annuities under both equity and interest rate risks”, Insurance: Mathematics and Economics 38, pp.215-28

Dai, M., Kwok, Y., Zong, J., 2008. “Guaranteed minimum withdrawal benefit in variable annuities”, Mathematical Finance (in press)

Holz, D., Kling, A., Rub, J., 2006. “GMWB for life. An analysis of lifelong withdrawal guarantees”, Working Paper ULM University

Milevsky, M., Posner, S., 2001. “The titanic option: Valuation of the guaranteed minimum death benefit in variable annuities and mutual funds”, The journal of Risk and Insurance 68, 1, pp.91-26

Milevsky, M., Promislow, S., 2001, “Mortality derivatives and the option to annuities”, Insurance: Mathematics and Economics 29, pp.299-18

Milevsky, M., Salisbury, T., 2006. “Financial valuation of guaranteed minimum withdrawal benefits”, Insurance: Mathematics and Economics 38, pp.21-38

Piscopo, G., 2009. “The fair price of guaranteed lifelong withdrawal benefit option in variable annuity”, Problems & Perspectives in Management, 7, pp.79-83

Sloane, W., 1970. Life insurers, variable annuities and mutual fund: a Critical Study, Journal of Risk and Insurance, Volume 37, No1, pp.87-104

Keywords Guaranteed lifelong withdrawal benefit option, static strategy, surrender value, variable annuity.
DOI http://dx.doi.org/10.15208/pieb.2010.46
Pages 47-49
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