Faithin Omaha eBook Collection

Download or read book Valuation of Large Variable Annuity Portfolios with Rank Order Kriging written by Guojun Gan and published by . This book was released on 2019 with total page 26 pages. Available in PDF, EPUB and Kindle. Book excerpt: Metamodels, which simplify the simulation models used in the valuation of large variable annuity portfolios, have recently increased in popularity. The ordinary kriging and the GB2 regression models are examples of metamodels used to predict fair market values of variable annuity guarantees. It is well known that the distribution of fair market values is highly skewed. Ordinary kriging does not fit well skewed data but it depends only on a few parameters that can be estimated straightforwardly. GB2 regression can handle skewed data but its parameter estimation can be quite challenging. In this paper, we explore the rank order kriging method, which can handle highly skewed data and depends only on a single parameter, for the valuation of large variable annuity portfolios. Our numerical results demonstrate that the rank order kriging method performs remarkably well in terms of fitting the skewed distribution and producing accurate estimates of fair market values at the portfolio level.