research-article
Authors: Zhimin Zhang and Wei Zhong
Volume 478, Issue C
Published: 24 July 2024 Publication History
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Abstract
We present a streamlined valuation method for the guaranteed minimum accumulation benefits incorporated within variable annuity contracts. At each contract renewal date, the insurer updates the policyholder's account value to the higher of the guaranteed value and the equity-linked investment value. In addition, we introduce lapse risks into the variable annuity contract, modeling the lapse decision under the assumption of stochastic intensity. Utilizing a combination of continuous-time Markov chain approximation and the Fourier cosine series expansion method, we derive closed-form valuation formulas under regime switching jump diffusion models. Numerical simulations showcase the precision and effectiveness of the proposed approach.
Highlights
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This paper proposes an efficient computational method for pricing variable annuities.
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Our results significantly improve computational efficiency compared to Monte Carlo.
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We introduce lapse risk and regime-switching into the paper.
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Our method can be used to calculate option pricing.
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Published In
Applied Mathematics and Computation Volume 478, Issue C
Oct 2024
220 pages
ISSN:0096-3003
Issue’s Table of Contents
Copyright © 2024.
Publisher
Elsevier Science Inc.
United States
Publication History
Published: 24 July 2024
Author Tags
- Variable annuity
- GMAB
- Regime switching jump diffusion model
- Lapse risk
- CTMC
- COS method
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