Download or read book Basis Risk in Variable Annuities written by Wenchu Li and published by . This book was released on 2023 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation provides a comprehensive and practical analysis of basis risk in the U.S. variable annuity market and examines effective fund mapping strategies to mitigate the level of basis risk while controlling for the associated transaction costs. Variable annuities are personal savings and investment products with long-term guarantees that expose life insurers to extensive financial risks. Liabilities associated with VA guarantees are the largest liability component faced by U.S. life insurers and have raised concerns to VA providers and regulators. And the hedging performance of these guarantee liabilities is impeded by the existence of basis risk. I look into 1,892 registered VA-underlying mutual funds and two VA separate accounts to estimate the basis risk faced by U.S. VA providers at the individual fund level and the separate account level. To evaluate the degree to which basis risk can be mitigated, I consider various proxy instrument sets and assess different variable selection models. The LASSO regression is shown to be most effective at identifying the most suitable (combination of) mapping instruments that minimize basis risk, compared to other test-based and screening-based models. I supplement it with the Sure Independence Screening (SIS) procedure to further limit the number of instruments requested in the hedging strategies, and modify it by introducing the diff LASSO regression to restrict the changes in instrument allocations across rebalancing periods and, therefore, control for transaction costs. I show that VA providers can reduce their exposure to basis risk by applying data analytic techniques in their mapping process, by hedging with ETFs instead of futures contracts, and through diversification at the separate account level. Combining the traditional fund mapping method with the machine learning algorithm, the proposed portfolio mapping strategy is efficient at reducing basis risk in VA separate accounts while controlling for the tractability and transaction costs of the mapping and hedging procedure, and is practical to incorporate newly-developed VA funds, as well as the varying compositions of separate accounts. Overall, this study presents that U.S. VA providers have the ability to mitigate basis risk to a greater extent than the limited literature on this topic has suggested.
Download or read book Local Hedging of Variable Annuities in the Presence of Basis Risk written by Denis-Alexandre Trottier and published by . This book was released on 2017 with total page 37 pages. Available in PDF, EPUB and Kindle. Book excerpt: A method to hedge variable annuities in the presence of basis risk is developed. A regime-switching model is considered for the dynamics of market assets. The approach is based on a local optimization of risk and is therefore very tractable and flexible. The local optimization criterion is itself optimized to minimize capital requirements associated with the variable annuity policy, the latter being quantified by the CVaR risk metric. In comparison to benchmarks, our method is successful in reducing capital requirements. Indeed the proposed local hedging scheme benefits from a higher exposure to equity risk and from time diversification of risk to earn excess return and facilitate the accumulation of capital.
Download or read book Life Annuity Products and Their Guarantees written by OECD and published by OECD Publishing. This book was released on 2016-12-05 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: This publication helps policy makers to better understand annuity products and the guarantees they provide in order to optimise the role that these products can play in financing retirement.
Download or read book Variable Annuities written by U.S. Securities and Exchange Commission and published by GPO FCIC. This book was released on 2007 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: Explains what they are, how they work, their cost, and questions to ask before you invest.
Download or read book Variable Annuities written by and published by . This book was released on 2005 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing Hedging and Risk Assessment for Variable Annuities written by Jinhyoung Kim and published by . This book was released on 2019 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Variable Annuities written by Tigran Kalberer and published by . This book was released on 2009 with total page 298 pages. Available in PDF, EPUB and Kindle. Book excerpt: Variable Annuities provides an overview of all the relevant aspects of variable annuity (VA) products from an insurers perspective. It is a collection of contributions from several authors, co-ordinated in such a way that it covers all relevant areas with minimal overlap and a consistent level of detail.
Download or read book The Handbook of Variable Income Annuities written by Jeffrey K. Dellinger and published by John Wiley & Sons. This book was released on 2006-08-28 with total page 802 pages. Available in PDF, EPUB and Kindle. Book excerpt: In-depth coverage of variable income annuities With trillions of dollars in retirement savings assets, the tens of millions of Americans on the precipice of retirement need to convert these savings into retirement income. The fact that variable income annuities (VIAs) generate maximum lifetime income with zero probability of outliving it has spurred the need for more information about VIAs. The Handbook of Variable Income Annuities is by far the most comprehensive source of information on this topic. This book thoroughly describes the most important principles of optimal asset liquidation and demystifies VIA mechanics, so readers can gain a high comfort level with this important financial instrument. Interestingly and clearly, The Handbook of Variable Income Annuities explains the mathematical pricing of variable income annuities, expected rates of return, taxation, product distribution, legal aspects, and much more. Jeffrey K. Dellinger (Fort Wayne, IN), a Fellow of the Society of Actuaries and a member of the American Academy of Actuaries, has over 25 years experience in the financial services sector. He advises institutions on retirement income optimization, products, and markets.
Download or read book The Truth about Variable Annuities written by J. Marc Ruggerio and published by Lulu.com. This book was released on 2010-04-30 with total page 153 pages. Available in PDF, EPUB and Kindle. Book excerpt: The most up to date and authoritative book on the complexities of structuring annuities. The author takes an unbiased point of view and articulates the complexities of all the major aspects of variable annuities and riders to allow them to become more understood by financial advisors and annuity owners alike. He clearly notes the benefits of variable annuities as well as the pitfalls which to look out for! Showing you the strategies that experts utilize within these investments while also detailing significant failures of cases where they were misunderstood and not structured properly. Can be used as a perfect reference guide on specific aspects of variable annuities as well as providing insight into the business of how variable annuities are sold. This is a bold and concise approach that allows the truth to be seen without reservations.
Download or read book Mitigating Interest Rate Risk in Variable Annuities written by Maciej Augustyniak and published by . This book was released on 2017 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt: Variable annuities are investment vehicles offered by insurance companies that combine a life insurance policy with long-term financial guarantees. These guarantees expose the insurer to market risks, such as volatility and interest rate risks, which can only be managed with a hedging strategy. The objective of this article is to study the effectiveness of dynamic delta-rho hedging strategies for mitigating interest rate risk in variable annuities with either a guaranteed minimum death benefit (GMDB) or guaranteed minimum withdrawal benefit (GMWB) rider. Our analysis centers on three important practical issues: (i) the robustness of delta-rho hedging strategies to model uncertainty, (ii) the impact of guarantee features (maturity versus withdrawal benefits) on the performance of the hedging strategy, and (iii) the importance of hedging interest rate risk in either a low and stable or rising interest rate environment. Overall, we find that the impact of interest rate risk is equally felt for the two types of products considered, and that interest rate hedges do lead to a significant risk reduction for the insurer, even when the ongoing low interest rate environment is factored in.
Download or read book Variable Annuities written by U S Securities and Exchange Commission and published by CreateSpace. This book was released on 2015-04-10 with total page 24 pages. Available in PDF, EPUB and Kindle. Book excerpt: Variable annuities have become a part of the retirement and investment plans of many Americans. Before you buy a variable annuity, you should know some of the basics- and be prepared to ask your insurance agent, broker, financial planner, or other financial professional lots of questions about whether a variable annuity is right for you. This is a in-depth description of variable annuities-what they are, how they work, and the charges you will pay. Before buying any variable annuity, however, you should find out about the particular annuity you are considering. Request a prospectus from the insurance company or from your financial professional, and read it carefully. The prospectus contains important information about the annuity contract, including fees and charges, investment options, death benefits, and annuity payout options. You should compare the benefits and costs of the annuity to other variable annuities and to other types of investments, such as mutual funds.
Download or read book Pricing and Hedging Variable Annuities in a L vy Market written by Abdou Kélani and published by . This book was released on 2015 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pricing and hedging life insurance contracts with minimum guarantees are major areas of concern for insurers and researchers. In this paper, we propose a unified framework for pricing, hedging, and assessing the risk embedded in the guarantees offered by Variable Annuities in a Lévy market. We address these questions from a risk management perspective. This method proves to be fast, accurate, and efficient. For hedging, we use a local risk minimization to provide a concise formula for the optimal hedging ratio. We also consider hedging strategies that use a portfolio of standard options. For assessing risk, we introduce an accumulated discounted loss function which takes mortality, transaction costs and fees into account. We apply our resulting unified framework to the Minimum Guarantees for Maturity Benefit (GMMB), Death Benefit (GMDB), and Accumulation Benefit (GMAB) contracts. We illustrate the whole method with CGMY and Kou processes which prove to offer a realistic modeling for financial prices. From this application, we draw important practical implications. In particular, we show that the assumption of geometric Brownian motion (GBM) leads to undervalue the actual economic capital necessary to hedge and gives an illusion of safety.
Download or read book Risk Measures for Variable Annuities written by Zhenyu Cui and published by . This book was released on 2017 with total page 35 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this paper, we propose an efficient approach to the calculation of risk measures for an insurer's liability from writing a variable annuity with guaranteed benefits. Our approach is based on a novel application of the Hermite series expansions on the transition density of a diffusion process to the insurance setting. We compare our method with existing methods in the literature, including the analytical method, the spectral method and the Green's function method, and illustrate its substantial advantages in calculating risk measures for variable annuities with different guarantee structures. The gained efficiency makes our method flexible to practical implementation in reporting risk measures on a daily basis. We also conduct sensitivity analysis of the risk measures with respect to key parameters.
Download or read book Mean variance Hedging with Basis Risk written by Xiaole Xue and published by . This book was released on 2019 with total page 22 pages. Available in PDF, EPUB and Kindle. Book excerpt: Basis risk arises in a number of financial and insurance risk management problems when the hedging assets do not perfectly match the underlying asset in a hedging program. Notable examples in insurance include the hedging for longevity risks, weather index based insurance products, variable annuities, etc. In the presence of basis risk, a perfect hedging is impossible, and in this paper, we adopt a mean-variance criterion to strike a balance between the expected hedging error and its variability. Under a time-dependent diffusion model setup, explicit optimal solutions are derived for hedging target being either a European option or a forward contract. The solutions are obtained by a delicate application of linear quadratic control theory, method of backward stochastic differential equation, and Malliavin calculus. A numerical example is presented to illustrate our theoretical results and their interesting implications.
Download or read book Variable Contracts written by Dan Tromblay and published by Dearborn Trade. This book was released on 2000 with total page 148 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book On the Hedging of Variable Annuities with Ratchet in Jump Models written by Abdou Kélani and published by . This book was released on 2014 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper suggests a unified methodology for assessing the risk embedded in ratchet guarantees offered in life insurance Variable Annuity contracts. Using a non-Gaussian setting in line with most stylized features observed in the market, we address these questions from an operational risk management perspective. Since the well-known and widely used delta-hedging ratio is not optimal, one of the most important problem raised is the hedging issue. The research suggests many theoretical solutions whose efficiency from a computational point of view is controversial and rarely studied. This paper tries to fill this gap by suggesting a unified method for fast pricing and hedging the market risk embedded in ratchet guarantees offered in VA. The authors also present a model-free recursive formula that facilitates the pricing and the hedging of Guaranteed Minimum Accumulation Benefits known as GMAB.
Download or read book Variable Annuities written by Anna Rita Bacinello and published by . This book was released on 2015 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: Life annuities and pension products usually involve a number of 'guarantees', such as, e.g., minimum accumulation rates, minimum annual payments and minimum total payout. Packaging different types of guarantees is the feature of the so-called Variable Annuities. Basically, these products are unit-linked investment policies providing deferred annuity benefits. The guarantees, commonly referred to as GMxBs (namely, Guaranteed Minimum Benefits of type 'x'), include minimum benefits both in case of death and survival. Following a Risk Management-oriented approach, this paper first aims at singling out all sources of risk affecting Variable Annuities ('risk identification phase'). Critical aspects arise from the interaction between financial and demographic issues. In particular, the longevity risk may have a dramatic impact on the technical equilibrium of a portfolio. Then, we deal with risk quantification ('risk assessment phase'), mostly via stochastic simulation of financial and demographic scenarios. Our main contribution is to present an integrated approach to risks in Variable Annuity products, so providing a unifying and innovative point of view.
