Show simple item record

dc.contributor.authorMarshall, Claymore
dc.date.accessioned2011-08-29 13:24:35 (GMT)
dc.date.available2011-08-29 13:24:35 (GMT)
dc.date.issued2011-08-29T13:24:35Z
dc.date.submitted2011
dc.identifier.urihttp://hdl.handle.net/10012/6149
dc.description.abstractA guaranteed minimum income benefit (GMIB) is a long-dated option that can be embedded in a deferred variable annuity. The GMIB is attractive because, for policyholders who plan to annuitize, it offers protection against poor market performance during the accumulation phase, and adverse interest rate experience at annuitization. The GMIB also provides an upside equity guarantee that resembles the benefit provided by a lookback option. We price the GMIB, and determine the fair fee rate that should be charged. Due to the long dated nature of the option, conventional hedging methods, such as delta hedging, will only be partially successful. Therefore, we are motivated to find alternative hedging methods which are practicable for long-dated options. First, we measure the effectiveness of static hedging strategies for the GMIB. Static hedging portfolios are constructed based on minimizing the Conditional Tail Expectation of the hedging loss distribution, or minimizing the mean squared hedging loss. Next, we measure the performance of semi-static hedging strategies for the GMIB. We present a practical method for testing semi-static strategies applied to long term options, which employs nested Monte Carlo simulations and standard optimization methods. The semi-static strategies involve periodically rebalancing the hedging portfolio at certain time intervals during the accumulation phase, such that, at the option maturity date, the hedging portfolio payoff is equal to or exceeds the option value, subject to an acceptable level of risk. While we focus on the GMIB as a case study, the methods we utilize are extendable to other types of long-dated options with similar features.en
dc.language.isoenen
dc.publisherUniversity of Waterlooen
dc.subjectGuaranteed minimum income benefitsen
dc.subjectFinancial risk managementen
dc.subjectVariable annuity guaranteesen
dc.subjectStatic hedgingen
dc.subjectSemi-static hedgingen
dc.subjectPortfolio optimizationen
dc.titleFinancial Risk Management of Guaranteed Minimum Income Benefits Embedded in Variable Annuitiesen
dc.typeDoctoral Thesisen
dc.pendingfalseen
dc.subject.programActuarial Scienceen
uws-etd.degree.departmentStatistics and Actuarial Scienceen
uws-etd.degreeDoctor of Philosophyen
uws.typeOfResourceTexten
uws.peerReviewStatusUnrevieweden
uws.scholarLevelGraduateen


Files in this item

Thumbnail

This item appears in the following Collection(s)

Show simple item record


UWSpace

University of Waterloo Library
200 University Avenue West
Waterloo, Ontario, Canada N2L 3G1
519 888 4883

All items in UWSpace are protected by copyright, with all rights reserved.

DSpace software

Service outages