Analytic valuation of guaranteed lifetime withdrawal benefits with a modified ratchet (Q6607484)

The authors consider guaranteed lifetime withdrawal benefits (GLWBs) -- an increasingly popular add-on to variable annuities, offering a guaranteed stream of payments for the remainder of the policyholder's life. GLWBs have typically been priced using numerical methods such as finite difference schemes or Monte Carlo simulations. Obtaining accurate and precise solutions using these methods can be very computationally expensive.\N\NThe authors extend an existing method for analytic pricing of these policies and introduce a novel variation on the commonly offered ratchet rider that more directly addresses policyholder motivation around lapse-and-reentry behaviour. The proposed pricing method is modified to accommodate this new rider and to compare it to the existing annual ratchet with respect to a policyholder's incentive to lapse such a policy.