A Mixed bond and equity fund model for the valuation of variable annuities

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Collection: Articles
Title: A Mixed bond and equity fund model for the valuation of variable annuities / Maciej Augustyniak, Frédéric Godin, Emmanuel Hamel
Author: Augustyniak, Maciej
Notes: Sumario: Variable annuity (VA) policies are typically issued on mutual funds invested in both fixed income and equity asset classes. However, due to the lack of specialized models to represent the dynamics of fixed income fund returns, the literature has primarily focused on studying long-term investment guarantees on single-asset equity funds. This article develops a mixed bond and equity fund model in which the fund return is linked to movements of the yield curve. Theoretical motivation for our proposed specification is provided through an analogy with a portfolio of rolling horizon bonds. Moreover, basis risk between the portfolio return and its risk drivers is naturally incorporated into our framework. Numerical results show that the fit of our model to Canadian VA data is adequate. Finally, the valuation of VAs is illustrated and it is found that the prevailing interest rate environment can have a substantial impact on guarantee costs.
Related records: En: Astin bulletin. - Belgium : ASTIN and AFIR Sections of the International Actuarial Association = ISSN 0515-0361. - 01/01/2021 Volumen 51 Número 1 - enero 2021 , p. 132-159
Materia / lugar / evento: Fondos de inversión Anualidad variable Renta fija Renta variable Rentabilidad Tipos de interés
Other authors: Godin, Fréderic
Hamel, Emmanuel
Other categories: 921.9
Rights: In Copyright (InC): http://rightsstatements.org/vocab/InC/1.0/
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