TY - JOUR
T1 - Efficient valuation of variable annuities under regime-switching jump diffusion models with surrender risk and mortality risk
AU - Zhong, Wei
AU - Zhang, Zhimin
AU - Cui, Zhenyu
N1 - Publisher Copyright:
© 2024 Elsevier B.V.
PY - 2024/11
Y1 - 2024/11
N2 - We present an efficient valuation approach for guaranteed minimum accumulation benefits (GMABs), guaranteed minimum death benefits (GMDBs), and surrender benefits (SBs) embedded in variable annuity (VA) contracts in a regime-switching jump diffusion model. We incorporate into the contract the risks of mortality and surrender, with these events generally monitored discretely over the life of the policy. Using a combination of the continuous-time Markov chain (CTMC) approximation and the Fourier cosine series expansion (COS) method, we determine that the valuation problem can be resolved within a regime-switching jump diffusion framework. Extensive numerical experiments showcase the efficiency of the proposed method, which proves to be more advantageous when compared to existing approaches like Monte Carlo (MC) simulation. The thorough analysis explores how model parameters affect the valuation outcomes.
AB - We present an efficient valuation approach for guaranteed minimum accumulation benefits (GMABs), guaranteed minimum death benefits (GMDBs), and surrender benefits (SBs) embedded in variable annuity (VA) contracts in a regime-switching jump diffusion model. We incorporate into the contract the risks of mortality and surrender, with these events generally monitored discretely over the life of the policy. Using a combination of the continuous-time Markov chain (CTMC) approximation and the Fourier cosine series expansion (COS) method, we determine that the valuation problem can be resolved within a regime-switching jump diffusion framework. Extensive numerical experiments showcase the efficiency of the proposed method, which proves to be more advantageous when compared to existing approaches like Monte Carlo (MC) simulation. The thorough analysis explores how model parameters affect the valuation outcomes.
KW - Cliquet guarantee
KW - CTMC
KW - Surrender risk
KW - Variable annuity
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U2 - 10.1016/j.cnsns.2024.108246
DO - 10.1016/j.cnsns.2024.108246
M3 - Article
AN - SCOPUS:85200116438
SN - 1007-5704
VL - 138
JO - Communications in Nonlinear Science and Numerical Simulation
JF - Communications in Nonlinear Science and Numerical Simulation
M1 - 108246
ER -