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Mortality risk and the valuation of annuities with guaranteed minimum death benefit options: application to the Italian population

Haberman, S. and Piscopo, G. (2008). Mortality risk and the valuation of annuities with guaranteed minimum death benefit options: application to the Italian population (Report No. Actuarial Research Paper No. 187). London, UK: Faculty of Actuarial Science & Insurance, City University London.

Abstract

In this note, we describe the payoff of Guaranteed Minimum Death Benefit options (GMDB) embedded in annuity contracts and discuss their valuation using data for the Italian male population as a case study. These put options have stochastic maturity dates due to the involuntary exercise at the moment of death. We value the GMDB as a weighted average price of a set of deterministic put options with different maturity dates, where the weights are the probability of death at every date. We take into account the mortality risk and investigate the sensitivity of the price of the option to changes in mortality probability using both deterministic and stochastic approaches.

Publication Type: Monograph (Working Paper)
Publisher Keywords: Guaranteed Minimum Death Benefit option, mortality risk, stochastic mortality model, variable annuity
Subjects: H Social Sciences > HG Finance
Departments: Cass Business School > Actuarial Science & Insurance > Actuarial Research Reports
URI: http://openaccess.city.ac.uk/id/eprint/2318
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