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Title: Local time, running supremum and variable annuity guarantee benefits with ratchet option Authors:  Runhuan Feng - University of Illinois at Urbana-Champaign (United States) [presenting]
Chongda Liu - University of Illinois at Urbana-Champaign (United States)
Abstract: Guaranteed lifetime withdrawal benefit (GLWB) with the step-up feature (a.k.a ratchet option) is among the most popular riders for variable annuity contracts. Most of the literature on the valuation problem are based on numerical solutions. A unique perspective is offered to formulate the valuation problem through the application of the local time and running supremum. Consequently, we obtain analytical solutions to risk-neutral value of the GLWB rider with roll-up feature in the waiting time and the step-up feature throughout lifetime, which lead to highly efficient algorithms for pricing and dynamic hedging of GLWB riders.