Optimal behavior strategy in the GMIB product
Guaranteed Minimum Income benefit are variable annuities contract, which offer the policyholder the possibility to con- vert the guarantee level into an annuities income for life. This paper focuses on the optimal customer behavior assuming the maximization of the discounted expected future cash flo...
Main Authors: | , , , |
---|---|
Format: | Article |
Language: | English |
Published: |
LLC "CPC "Business Perspectives"
2018-09-01
|
Series: | Insurance Markets and Companies |
Subjects: | |
Online Access: | https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/10938/IMC_2018_01_Kalife.pdf |
id |
doaj-21dc7b014dca4dce8c9334d88ebfbedd |
---|---|
record_format |
Article |
spelling |
doaj-21dc7b014dca4dce8c9334d88ebfbedd2020-11-25T01:37:57ZengLLC "CPC "Business Perspectives"Insurance Markets and Companies 2616-35512522-95912018-09-0191416910.21511/ins.09(1).2018.0510938Optimal behavior strategy in the GMIB productAymeric Kalife0Gabriela López Ruiz1Saad Mouti2Xiaolu Tan3Head of saving AXA Group Risk Management, Adjunct Professor at University of Paris DauphinePh.D., Pierre and Marie Curie UniversityPh.D., Pierre and Marie Curie UniversityAssistant Professor at Ceremade University of Paris DauphineGuaranteed Minimum Income benefit are variable annuities contract, which offer the policyholder the possibility to con- vert the guarantee level into an annuities income for life. This paper focuses on the optimal customer behavior assuming the maximization of the discounted expected future cash flows over the full life of the contract duration. Using convenient scaling properties of the contract value enables to reduce the complexity (dimension) of the problem and to characterize the policyholder’s decision as a function of the contract moneyness across four main choices: zero withdrawals, guaranteed withdrawals, lapse and the income period election. Sensitivities to key drivers such as the market volatility, the interest rate and the roll-up rate illustrate how crucial are not only the environment, but also the product design features, in order to ensure a fair and robust pricing for both customer and life insurer. In particular, the authors find that most empirical contracts are usually underpriced compared to mean optimal behavior pricing, which empirically translated into multiple updates of behavior assumptions and re-reserving by life insurers in the recent years.https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/10938/IMC_2018_01_Kalife.pdfdynamic programmingGMIBoptimal withdrawalsPDErational behaviorvariable annuities |
collection |
DOAJ |
language |
English |
format |
Article |
sources |
DOAJ |
author |
Aymeric Kalife Gabriela López Ruiz Saad Mouti Xiaolu Tan |
spellingShingle |
Aymeric Kalife Gabriela López Ruiz Saad Mouti Xiaolu Tan Optimal behavior strategy in the GMIB product Insurance Markets and Companies dynamic programming GMIB optimal withdrawals PDE rational behavior variable annuities |
author_facet |
Aymeric Kalife Gabriela López Ruiz Saad Mouti Xiaolu Tan |
author_sort |
Aymeric Kalife |
title |
Optimal behavior strategy in the GMIB product |
title_short |
Optimal behavior strategy in the GMIB product |
title_full |
Optimal behavior strategy in the GMIB product |
title_fullStr |
Optimal behavior strategy in the GMIB product |
title_full_unstemmed |
Optimal behavior strategy in the GMIB product |
title_sort |
optimal behavior strategy in the gmib product |
publisher |
LLC "CPC "Business Perspectives" |
series |
Insurance Markets and Companies |
issn |
2616-3551 2522-9591 |
publishDate |
2018-09-01 |
description |
Guaranteed Minimum Income benefit are variable annuities contract, which offer the policyholder the possibility to con- vert the guarantee level into an annuities income for life. This paper focuses on the optimal customer behavior assuming the maximization of the discounted expected future cash flows over the full life of the contract duration. Using convenient scaling properties of the contract value enables to reduce the complexity (dimension) of the problem and to characterize the policyholder’s decision as a function of the contract moneyness across four main choices: zero withdrawals, guaranteed withdrawals, lapse and the income period election. Sensitivities to key drivers such as the market volatility, the interest rate and the roll-up rate illustrate how crucial are not only the environment, but also the product design features, in order to ensure a fair and robust pricing for both customer and life insurer. In particular, the authors find that most empirical contracts are usually underpriced compared to mean optimal behavior pricing, which empirically translated into multiple updates of behavior assumptions and re-reserving by life insurers in the recent years. |
topic |
dynamic programming GMIB optimal withdrawals PDE rational behavior variable annuities |
url |
https://businessperspectives.org/images/pdf/applications/publishing/templates/article/assets/10938/IMC_2018_01_Kalife.pdf |
work_keys_str_mv |
AT aymerickalife optimalbehaviorstrategyinthegmibproduct AT gabrielalopezruiz optimalbehaviorstrategyinthegmibproduct AT saadmouti optimalbehaviorstrategyinthegmibproduct AT xiaolutan optimalbehaviorstrategyinthegmibproduct |
_version_ |
1725056267207049216 |