Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/194687 
Year of Publication: 
2017
Citation: 
[Journal:] Cogent Economics & Finance [ISSN:] 2332-2039 [Volume:] 5 [Issue:] 1 [Publisher:] Taylor & Francis [Place:] Abingdon [Year:] 2017 [Pages:] 1-17
Publisher: 
Taylor & Francis, Abingdon
Abstract: 
Financial crisis in 2007-2008 have caused losses to life insurance companies issuing variable annuities with guarantees. This is partly due to failure of variable annuity (VA) issuers to anticipate the large variations in asset prices during the financial crisis times in their pricing framework and also setting a higher guaranteed rate. This study aims to investigate the pricing of the guaranteed minimum death and accumulation benefits embedded in flexible premium VA. We compare the prices from calibrated Black-Scholes model to that of calibrated jump-diffusion model. Although both models assume constant volatility, the fact that Black-Scholes model ignores abnormal asset price changes due to jumps is likely to under-price the VA. We also conduct a case study to analyse the impact on guarantee fees for different stock market performance and regional mortality rates.
Subjects: 
jump-diffusion model
variable annuity
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by Logo
Document Type: 
Article

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