Bayesian Analysis of Reserving Minimum Guarantees in Variable Annuities

Byoung Hark Yoo; Bangwon Ko; Hyuk-Sung Kwon

In this paper, we analyze the effect of stochastic model selection for stock return processes on minimum guarantee reserves. Usually it is difficult to reflect uncertainty about estimated guarantee reserves using the method of maximum likelihood estimation adopted by the previous research. However, under the Bayesian approach, the uncertainty can be easily incorporated into the models and it is possible to make statistical inferences about the differences between the guarantee reserves under the LN model and RSLN2 model. As a result, we find that the model selection has a substantial impact on the GMAB reserves. Moreover, unlike the previous research, we also investigate the effect of the initial regime state under the RSLN2 model on the minimum guarantee reserves. The results show that the impact can be significant if the GMAB options have maturities of less than 5 years.

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* 2021년 이후 발행 논문의 참고문헌은 현재 구축 중입니다.

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