Description: This paper first derives the fair participation rate based on a fair value of the equity-indexed annuity EIA. Then using risk measures, a new participation rate is obtained, based on the tail loading of the hedging error distribution. Risk management strategies reducing risk related to the hedging error are also presented. A detailed numerical analysis is performed for a point-to-point EIA.

Description: This session at the SOA 2001 Toronto Spring Meeting offers an overview of stochastic pricing including stochastic variables, equity market models, interest rate models and policyholder behavior. An example is given using a variable annuity product.