Fri, February 14, 2025
1:30 pm - 2:30 pm
Math Building (MA) 105
Yumin Wang
University of Manitoba
Title
Risk-Sharing Pricing of Variable Annuities within a Principal-Agent Framework
Abstract
We propose a new risk-sharing pricing approach for variable annuities within a principal-agent framework where an insurer (principal) is the contract provider and a policyholder (agent) is the follower having the surrender option. While the risk-neutral pricing approach adopted in the existing literature leads to significantly higher fees and more frequent surrendering than market observations, this new risk-sharing pricing approach reconciles the misalignment between theoretical results and market observations. We also find that a surrender penalty or a lower insurance fee can make the insurer’s expected profit more robust.