Date of Award
Fall 12-6-2010
Degree Type
Dissertation
Degree Name
Doctor of Philosophy (PhD)
Department
Risk Management and Insurance
First Advisor
ERIC R. ULM
Abstract
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 beneficiaries by investing dynamically in the fixed account and the variable fund and withdrawing optimally. In section three, we add fixed and stochastic income to the model and find that both human capital and the GMDB will influence the insured's allocation and withdrawal decisions. Section four explores the GMDB effects if there is also a term life policy available in the market. Our work suggests that if term life insurance is available and is continuously adjustable, fairly priced GMDBs may not be useful investments and the existence of GMDBs does not affect term life policy demand significantly.
DOI
https://doi.org/10.57709/1677263
Recommended Citation
Gao, Jin, "A Dynamic Analysis of Variable Annuities and Guarenteed Minimum Benefits." Dissertation, Georgia State University, 2010.
doi: https://doi.org/10.57709/1677263