Perspectives of Innovations, Economics and Business
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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 | Advantage Compendiun, Ltd, 2008. A look at annuity and securities GLWBs 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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