Fig 4.3 with model3’ (rho K is 0.7) and model 2

With this exercise VAs with GMAB and GMDB riders are priced by means of the static approaches. 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 state-dependent and the base fee varies from 1% to 13%
• The state-dependent barrier is the GMAB minimum amount at T = 15

With regards to the simulation:

• The number of Monte Carlo simulations will be 20000.
• We’re going to calculate the contract value with model3’ where rho_K is now 0.7 instead of -0.7 and model 2 with constant volatility 0.2

The regression in LSMC is done only when the account is below the barrier.

## Model3' with rho_K = 0.7:

##  [1] 118.13622 114.83632 111.81731 109.09128 106.85958 104.63817 102.92110
##  [8] 101.42816  99.99655  99.17446  98.60242  97.71665  97.29003

## Model2:

##  [1] 118.46456 114.86219 111.10389 107.48260 104.17168 101.98873 100.43415
##  [8]  99.51520  98.73770  98.22206  97.72584  97.34234  96.98410