Fig 4.5 static approach with constant fees - four models

With this exercise VAs with GMAB and GMDB riders are priced by means of the static approach. The caracteristics of the contracts are the following:

• Contract expires at T = 15 years
• Age of the policyholder at contract inception is 50
• Both GMAB and GMDB pay the minimum amount as the roll-up of premium.
• The roll-up rates is 2%
• The fee is constant and varies from 1% to 13%
• The surrender penalty is 2% constant.

With regards to the simulation:

• The number of Monte Carlo simulations will be 20000.
• We’re going to calculate the contract value with all four models.

Each graph reports all four models. Here model 1 is the simplest GBM deterministic Weibull mortality case and we increase the complexity up to model 4 which is the full model in BMOP2011.