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A Comprehensive Study of Guaranteed ...

Hu, Wenlong.

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A Comprehensive Study of Guaranteed Minimum Maturity Benefit and Guaranteed Minimum Death Benefit Under Regime-Switching Models.

Record Type:	Electronic resources : Monograph/item
Title/Author:	A Comprehensive Study of Guaranteed Minimum Maturity Benefit and Guaranteed Minimum Death Benefit Under Regime-Switching Models./
Author:	Hu, Wenlong.
Published:	Ann Arbor : ProQuest Dissertations & Theses, : 2021,
Description:	100 p.
Notes:	Source: Dissertations Abstracts International, Volume: 83-02, Section: B.
Contained By:	Dissertations Abstracts International83-02B.
Subject:	Investments. -
Online resource:	https://pqdd.sinica.edu.tw/twdaoapp/servlet/advanced?query=28552575
ISBN:	9798522941444

A Comprehensive Study of Guaranteed Minimum Maturity Benefit and Guaranteed Minimum Death Benefit Under Regime-Switching Models.
Hu, Wenlong.

A Comprehensive Study of Guaranteed Minimum Maturity Benefit and Guaranteed Minimum Death Benefit Under Regime-Switching Models. - Ann Arbor : ProQuest Dissertations & Theses, 2021 - 100 p.

Source: Dissertations Abstracts International, Volume: 83-02, Section: B.

Thesis (Ph.D.)--North Carolina State University, 2021.

This item must not be sold to any third party vendors.

In this dissertation, we investigate the pricing and hedging of Guaranteed Minimum Benefits (GMBs) in life annuity products, and we extend the existing framework by assuming the underlying asset dynamics evolve under a regime-switching jump-diffusion environment. First, two most popular GMB contracts, Guaranteed Minimum Maturity Benefit (GMMB) and Guaranteed Minimum Death Benefit (GMDB), are characterized by comprehensive quantitative models that assess both the market risk on the liability side and the revenue risk on the asset side from the viewpoint of insurers. Then, five stochastic mortality models (Cox-Ingersoll-Ross process model, Vasicek process model, Ornstein-Uhlenbeck process model, Feller process model and a two-factor mortality model) are utilized to describe the mortality risk embedded in GMBs, and their parameters are estimated by calibrating to the mortality data of the United States male population. After comparing the Akaike information criterion (AIC) and Bayesian information criterion (BIC) criteria, we find that the Feller process model fits the real data best among the five models. In addition, numeric solutions for net liabilities, fair rate of fees and Greeks (sensitivities of net liabilities with respect to model parameters) of GMMB and GMDB are derived by an accurate and fast Fourier Space Timestepping (FST) algorithm. Numerical results based on Monte Carlo simulations are also provided for comparative purpose. Moreover, an unhedged and three statically hedged portfolios which are constructed by different methods (linear algebra method, optimization method and regularization method) are introduced, and their performances are assessed by comparing the short-term and the long-term volatility, Value-at-risk (VaR) and expected shortfall (CVaR). The results indicate that, in the short-term, the portfolio constructed by optimization method performs the best and all three hedged portfolios perform better than unhedged portfolio in the long-term. Finally, these hedging results provide insurers some guidelines to hedge according to their risk tolerances. For example, if an insurer is more concerned about the short-term volatility, a linear algebra method is preferred although it requires frequent rebalancing. In addition, if one is more concerned about the transaction cost, a optimization method is more preferable and it does not need to be rebalanced every year. The regularization method is suitable for an incomplete market which only have few instruments for hedging.

ISBN: 9798522941444Subjects--Topical Terms:

566987
Investments.

A Comprehensive Study of Guaranteed Minimum Maturity Benefit and Guaranteed Minimum Death Benefit Under Regime-Switching Models.
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245 1 2 $a A Comprehensive Study of Guaranteed Minimum Maturity Benefit and Guaranteed Minimum Death Benefit Under Regime-Switching Models.
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300 $a 100 p.
500 $a Source: Dissertations Abstracts International, Volume: 83-02, Section: B.
500 $a Advisor: Kitapbayev, Yerkin;Li, Zhilin;Medhin, Negash;Pang, Tao.
502 $a Thesis (Ph.D.)--North Carolina State University, 2021.
506 $a This item must not be sold to any third party vendors.
520 $a In this dissertation, we investigate the pricing and hedging of Guaranteed Minimum Benefits (GMBs) in life annuity products, and we extend the existing framework by assuming the underlying asset dynamics evolve under a regime-switching jump-diffusion environment. First, two most popular GMB contracts, Guaranteed Minimum Maturity Benefit (GMMB) and Guaranteed Minimum Death Benefit (GMDB), are characterized by comprehensive quantitative models that assess both the market risk on the liability side and the revenue risk on the asset side from the viewpoint of insurers. Then, five stochastic mortality models (Cox-Ingersoll-Ross process model, Vasicek process model, Ornstein-Uhlenbeck process model, Feller process model and a two-factor mortality model) are utilized to describe the mortality risk embedded in GMBs, and their parameters are estimated by calibrating to the mortality data of the United States male population. After comparing the Akaike information criterion (AIC) and Bayesian information criterion (BIC) criteria, we find that the Feller process model fits the real data best among the five models. In addition, numeric solutions for net liabilities, fair rate of fees and Greeks (sensitivities of net liabilities with respect to model parameters) of GMMB and GMDB are derived by an accurate and fast Fourier Space Timestepping (FST) algorithm. Numerical results based on Monte Carlo simulations are also provided for comparative purpose. Moreover, an unhedged and three statically hedged portfolios which are constructed by different methods (linear algebra method, optimization method and regularization method) are introduced, and their performances are assessed by comparing the short-term and the long-term volatility, Value-at-risk (VaR) and expected shortfall (CVaR). The results indicate that, in the short-term, the portfolio constructed by optimization method performs the best and all three hedged portfolios perform better than unhedged portfolio in the long-term. Finally, these hedging results provide insurers some guidelines to hedge according to their risk tolerances. For example, if an insurer is more concerned about the short-term volatility, a linear algebra method is preferred although it requires frequent rebalancing. In addition, if one is more concerned about the transaction cost, a optimization method is more preferable and it does not need to be rebalanced every year. The regularization method is suitable for an incomplete market which only have few instruments for hedging.
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