TY - JOUR
T1 - Risk measures for variable annuities
T2 - A hermite series expansion approach
AU - Cui, Zhenyu
AU - Kim, Jinhyoung
AU - Lian, Guanghua
AU - Liu, Yanchu
N1 - Publisher Copyright:
© 2019 China Science Publishing & Media Ltd.
PY - 2019/6
Y1 - 2019/6
N2 - In this study, 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, spectral method and Green's function method, and illustrate its substantial advantages in calculating risk measures for variable annuities with different guarantee structures. The improved efficiency makes our method flexible to practical implementation in reporting risk measures on a daily basis. We also conduct a sensitivity analysis of the risk measures with respect to key parameters.
AB - In this study, 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, spectral method and Green's function method, and illustrate its substantial advantages in calculating risk measures for variable annuities with different guarantee structures. The improved efficiency makes our method flexible to practical implementation in reporting risk measures on a daily basis. We also conduct a sensitivity analysis of the risk measures with respect to key parameters.
KW - Conditional-tail-expectation
KW - Guaranteed minimum death benefit
KW - Guaranteed minimum maturity benefit
KW - Value-at-Risk
KW - Variable annuity
UR - http://www.scopus.com/inward/record.url?scp=85092263655&partnerID=8YFLogxK
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U2 - 10.1016/j.jmse.2019.05.002
DO - 10.1016/j.jmse.2019.05.002
M3 - Article
AN - SCOPUS:85092263655
SN - 2096-2320
VL - 4
SP - 119
EP - 141
JO - Journal of Management Science and Engineering
JF - Journal of Management Science and Engineering
IS - 2
ER -