IDEAS home Printed from https://ideas.repec.org/a/eee/insuma/v118y2024icp59-71.html
   My bibliography  Save this article

Analytic valuation of guaranteed lifetime withdrawal benefits with a modified ratchet

Author

Listed:
  • Harcourt, Darcy
  • Daglish, Toby
  • Ulm, Eric R.

Abstract

Guaranteed Lifetime Withdrawal Benefits (GLWBs) are an increasingly popular add-on to Variable Annuities, offering a guaranteed stream of payments for the remainder of the policyholder's life. GLWBs have typically been priced using numerical methods such as finite difference schemes or Monte Carlo simulations; obtaining accurate and precise solutions using these methods can be very computationally expensive. In this paper, we extend an existing method for analytic pricing of these policies to a more general fee structure. We introduce a novel variation on the commonly offered ratchet rider that more directly addresses policyholder motivation around lapse-and-reentry behaviour. We then modify our pricing method to accommodate this new rider and compare it to the existing annual ratchet with respect to a policyholder's incentive to lapse such a policy.

Suggested Citation

  • Harcourt, Darcy & Daglish, Toby & Ulm, Eric R., 2024. "Analytic valuation of guaranteed lifetime withdrawal benefits with a modified ratchet," Insurance: Mathematics and Economics, Elsevier, vol. 118(C), pages 59-71.
    • Handle: RePEc:eee:insuma:v:118:y:2024:i:c:p:59-71
    DOI: 10.1016/j.insmatheco.2024.06.001
    as

    Download full text from publisher

    File URL: https://www.sciencedirect.com/science/article/pii/S0167668724000635
    Download Restriction: Full text for ScienceDirect subscribers only
    File URL: https://libkey.io/10.1016/j.insmatheco.2024.06.001?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Keywords

    Variable annuities; Guaranteed lifetime withdrawal benefits; Analytic solution; Geometric Brownian motion with affine drift;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:insuma:v:118:y:2024:i:c:p:59-71. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: https://www.elsevier.com/locate/inca/505554 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.