Application of Data Clustering and Machine Learning in Variable Annuity Valuation

23 Pages Posted: 10 Sep 2013 Last revised: 15 Oct 2013

See all articles by Guojun Gan

Guojun Gan

Manulife Asset Management

Date Written: August 16, 2013

Abstract

The valuation of variable annuity guarantees has been studied extensively in the past four decades. However, almost all the studies focus on the valuation of guarantees embedded in a single variable annuity contract. How to efficiently price the guarantees for a large portfolio of variable annuity contracts has not received enough attention. This paper fills the gap by introducing a novel method based on data clustering and machine learning to price the guarantees for a large portfolio of variable annuity contracts. Our test results show that this method performs very well in terms of accuracy and speed.

Keywords: Variable annuity, Data clustering, Machine learning, Monte Carlo simulation, Portfolio Valuation, Portfolio Pricing

JEL Classification: G12, G13

Suggested Citation

Gan, Guojun, Application of Data Clustering and Machine Learning in Variable Annuity Valuation (August 16, 2013). Insurance: Mathematics and Economics, 2013, Available at SSRN: https://ssrn.com/abstract=2322863 or http://dx.doi.org/10.2139/ssrn.2322863

Guojun Gan (Contact Author)

Manulife Asset Management ( email )

200 Bloor Street East
NT-5
Toronto, Ontario M4W1E5
Canada

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