Economics, Econometrics and Finance
4 years ago

Long-term interest rate changes impact variable annuity liabilities significantly.

Astin Bulletin
RISK-BASED CAPITAL FOR VARIABLE ANNUITY UNDER STOCHASTIC INTEREST RATE
Jindong Wang, Wei Xu

Paper Summary

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Interest rates play a big role in the risk of variable annuities (VAs) because they have long-term effects. This study used a special method to calculate the risk of VAs by looking at how mutual funds and interest rates change together. They found that when interest rates go up, the risk of VAs goes down. Also, when interest rates and mutual funds are related, the risk of VAs becomes more unpredictable. Changes in monetary policy affect long-term VAs more than short-term ones.