In this paper we propose a methodology for valuing future annuity contracts based on the Least-Squares Monte Carlo approach. We adopt, as first step, a simplified computational framework where just one risk factor is taken into account, and then we extend it introducing other sources of risk. We give a brief description of the valuation procedure and provide some numerical illustrations. Furthermore, to test the efficiency of the proposed methodology, we compare our results with those obtained by applying a straightforward and time-consuming approach based on nested simulations. Finally, we present some possible applications in the context of de-risking strategies for pension plans and in the valuation of guaranteed annuity options.

An Efficient Monte Carlo Based Approach for the Simulation of Future Annuity Values

Anna Rita Bacinello;Pietro Millossovich
;
Fabio Viviano
2021

Abstract

In this paper we propose a methodology for valuing future annuity contracts based on the Least-Squares Monte Carlo approach. We adopt, as first step, a simplified computational framework where just one risk factor is taken into account, and then we extend it introducing other sources of risk. We give a brief description of the valuation procedure and provide some numerical illustrations. Furthermore, to test the efficiency of the proposed methodology, we compare our results with those obtained by applying a straightforward and time-consuming approach based on nested simulations. Finally, we present some possible applications in the context of de-risking strategies for pension plans and in the valuation of guaranteed annuity options.
978-88-5511-257-4
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Utilizza questo identificativo per citare o creare un link a questo documento: http://hdl.handle.net/11368/2992357
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