Fair Pricing of Variable Annuities with Guarantees under the Benchmark Approach

In this paper we consider the pricing of variable annuities (VAs) with guaranteed minimum withdrawal benefits. We consider two pricing approaches, the classical risk-neutral approach and the benchmark approach, and we examine the associated static and optimal behaviors of both the investor and insurer. The first model considered is the so-called minimal market model, where pricing is achieved using the benchmark approach. The benchmark approach was introduced by Platen in 2001 and has received w...