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The Effect Of Labor Income And Health Uncertainty On The Valuation Of Guaranteed Minimum Death Benefits, Jin Gao, Eric R. Ulm
The Effect Of Labor Income And Health Uncertainty On The Valuation Of Guaranteed Minimum Death Benefits, Jin Gao, Eric R. Ulm
Risk Management and Insurance Faculty Publications
We examine the effect of labor income and health uncertainty on the optimal choices of policyholders with Guaranteed Minimum Death Benefits embedded in Variable Annuities. These choices are determined in the context of a utility-based life cycle model including bequest motives and optimal term life purchases. We then determine risk-neutral prices from the perspective of the issuing financial institutions. In contrast to previous studies which do not include income and health uncertainty, we find that very risk-averse policyholders in weak job markets would be willing to pay the risk-neutral price in order to receive these benefits. This occurs because an …
A Dynamic Analysis Of Variable Annuities And Guarenteed Minimum Benefits, Jin Gao
A Dynamic Analysis Of Variable Annuities And Guarenteed Minimum Benefits, Jin Gao
Risk Management and Insurance Dissertations
We determine the optimal allocation of funds between the fixed and variable sub-accounts in a variable annuity with a GMDB (Guaranteed Minimum Death Benefit) clause featuring partial withdrawals by using a utility-based approach. In section two, the Merton method is applied by assuming that individuals allocate funds optimally in order to maximize the expected utility of lifetime consumption. It also reflects bequest motives by including the recipient's utility in terms of the policyholder's guaranteed death benefits. We derive the optimal transfer choice by the insured, and furthermore price the GMDB through maximizing the discounted expected utility of the policyholders and …