Valuation of variable annuities with guaranteed minimum maturity benefits and periodic fees

Meiqiao Ai, Yunyun Wang, Zhimin Zhang, Dan Zhu

Research output: Contribution to journalArticleResearchpeer-review

Abstract

This paper focuses on the valuation of variable annuities with a guaranteed minimum maturity benefit under a regime-switching Lévy model. The model allows policyholders to surrender their annuities and receive a surrender benefit at predetermined tenor times before maturity. Additionally, we consider a state-dependent periodic fee structure where fees are deducted from the policyholder's account if it exceeds a certain level at discrete time points. Incorporating this fee structure, the Fourier cosine series expansion method based on characteristic functions is employed to determine the values and optimal surrender strategies for variable annuity contracts. Finally, we provide a comprehensive set of numerical examples to demonstrate and assess the effectiveness of our approach thoroughly.

Original languageEnglish
Pages (from-to)252-278
Number of pages27
JournalScandinavian Actuarial Journal
Volume2024
Issue number3
DOIs
Publication statusPublished - 2024

Keywords

  • COS
  • optimal surrender
  • regime-switching Lévy model
  • Variable annuities

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