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Old 03-06-2018, 09:15 PM
babblerblue babblerblue is offline
Join Date: Mar 2018
College: National Chengchi University
Posts: 1
Post How to price a GMDB linking to a target maturity bond fund

I'm trying to price a life insurance with a guaranteed minimum death benefit (GMDB), and its underlying fund is a 6-year target maturity bond fund, in which all the invested bonds will be held only to maturity.

There are several possible solutions but I am uncertain which one is the most feasible/practical. For example, one can model the interest rate process using an interest rate model (e.g., CIR) and apply the simulated interest rate to evaluate the fund value at every time point. Alternatively, one can model the return process of the account value using the general methods proposed in AG43.

Is there a thread on this topic? Any advice and suggestions will be greatly appreciated.
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Old 03-07-2018, 05:38 PM
Steve Grondin Steve Grondin is offline
Join Date: Nov 2001
Posts: 6,609

"Where? I don't see."
"Here, stochastically!"
"Pretty sneaky, Sis"

OK, perhaps a bit of cultural explanation. That's a parody of a commercial from the 1970's. The commercial said "diagonally", I figure if I could say one word about how I'd approach your task, it'd be "stochastically".
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Old 03-09-2018, 09:24 AM
Olrich Olrich is offline
Join Date: Jan 2008
Posts: 161

Not a direct answer to your question, but one place to start would be looking at how the Academy Scenario generator does bond funds - I believe it's more like the former of the two approaches you describe.

Helpful thread here with some additional references / background on the generator
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account values, ag43, gmdb, interest rate model, target maturity bond fund

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