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Application of data clustering and machine learning in variable annuity valuation. (English) Zbl 1290.91086

Summary: 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.

MSC:

91B30 Risk theory, insurance (MSC2010)
62P05 Applications of statistics to actuarial sciences and financial mathematics
62H30 Classification and discrimination; cluster analysis (statistical aspects)
68T05 Learning and adaptive systems in artificial intelligence
91G20 Derivative securities (option pricing, hedging, etc.)
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