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http://dx.doi.org/10.5392/JKCA.2020.20.11.281

Guaranteed Minimum Accumulated Benefit in Variable Annuities and Jump Risk  

Kwon, Yongjae (국민대학교 재무금융.회계학부)
Kim, So-Yeun (서울과학기술대학교 경영학과)
Publication Information
The Journal of the Korea Contents Association / v.20, no.11, 2020 , pp. 281-291 More about this Journal
Abstract
This study used Gauss-Poisson jump diffusion process on standard assets to estimate the statutory reserves of Variable Annuity (VA) guarantees specified in Korean bylaw of insurance supervision and calculated guarantee fees and risks based on the model to see the effect of considering the jumps. Financial assets, except KOSPI 200, have fat-tailed return distributions, which is an indirect evidence of discontinuous jumps. In the case of a domestic stock index and foreign stock indexes(Korean Won), guarantee fees and risks decrease when jumps are considered in models of underlying assets. This is explained by decreases in standard deviations after the jump diffusion is considered. On the other hand, in the case of domestic bond indexes and a foreign bond index(Korean Won), guarantee fees and risks tend to increase when jumps are considered. Results from a foreign stock index(US Dollar) and a foreign bond index(US Dollar) were opposite to those from the same kinds of Korean Won indexes. We conclude that VA guarantee fees and risks may be under or over estimated when jumps are not considered in models of underlying assets.
Keywords
Jump Diffusion Models; Gibbs Sampling; Variable Annuities; Guaranteed Living Benefits; Guarantee Fee;
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Times Cited By KSCI : 1  (Citation Analysis)
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