PSU Mark
Eberly College of Science Mathematics Department

Meeting Details

For more information about this meeting, contact Xiantao Li, Yuxi Zheng, Kris Jenssen, Jinchao Xu, Hope Shaffer.

Title:STOCHASTIC CONTROL MODEL ON GUARANTEED MINIMUM WITHDRAWAL BENEFIT IN VARIABLE ANNUITIES
Seminar:Computational and Applied Mathematics Colloquium
Speaker:Yue Kuen Kwok, Hong Kong University of Science and Technology
Abstract:
We develop a singular stochastic control model for pricing variable annuities with the guaranteed minimum withdrawal benefit. This benefit promises to return the entire initial investment, with withdrawals spread over the term of the contract, irrespective of the market performance of the underlying asset portfolio. We explore the optimal withdrawal strategy adopted by the rational policyholder that maximizes the expected discounted value of the cash flows generated from holding this variable annuity policy. An efficient finite difference algorithm using the penalty approximation approach is proposed for solving the singular stochastic control model. Theoretical analysis on the optimal withdrawal policies of the holders of the variable annuities with the guaranteed minimum withdrawal benefit are performed. We also construct discrete pricing formulation that models withdrawals on discrete dates. Our numerical tests show that the solution values from the discrete model converge to those of the continuous model.

Room Reservation Information

Room Number:MB106
Date:04 / 08 / 2011
Time:03:35pm - 04:25pm