Professor Rosita Chang Presents Paper at the 27th Annual Meeting of the Academy of Financial Services

Professor Rosita Chang presented a paper (co-authored with Qianqiu Liu, Jack DeJong, John Robinson, Jack Suyderhoud) at the 27th Annual Meeting of the Academy of Financial Services in Chicago, October 17-18, 2013. The title of the paper is "The Cost of Guaranteed Income: A Consumer-oriented Approach to Considering the Value Proposition of Variable Annuities with Guaranteed Lifetime Withdrawal Benefit Riders".


Variable annuity contracts with lifetime income guarantees continue to be among the most complex and controversial products in the investment arena. This paper takes a novel consumer-oriented approach to evaluating the most popular form of rider guarantee, the guaranteed lifetime withdrawal benefit (GLWB). Specifically, bootstrapping techniques are employed to compare three common forms of GLWB riders and two non-guaranteed index model portfolios.  The results provide surprising insight into the likelihood that a GLWB rider may be needed and give consumers quantifiable data to help them determine whether such rider guarantees have a place in their utility functions.  The study also provides useful data for weighing the relative merits of three common forms of rider guarantees and sheds interesting new light on the failure risk assumed by the issuing insurance companies.