Friday, February 7, 2025 10:30 am
-
11:30 am
EST (GMT -05:00)
Cancelled - this talk will be rescheduled to a future date
Actuarial Science and Financial Mathematics seminar series
Thorsten Moenig
Temple University
Room: M3 3127
Basis risk in variable annuities
Several studies have argued that basis risk severely impedes the hedging of long-term financial guarantees in U.S. variable annuity (VA) products, putting carriers and policyholders at risk. In contrast, we construct a data analytic approach for VA portfolios that reduces basis risk to more acceptable levels by taking advantage of its diversification potential. Using historical fund returns for two VA carriers we demonstrate that our algorithm simultaneously achieves low residual basis risk and low transaction costs with few hedging instruments.