MCFAM: “The impact of the fee structure on the optimal investment strategies of variable annuity policyholders"

Please join us for our next seminar either in person or virtually! This seminar will feature Adriana Ocejo from the University of North Carolina Charlotte who will discuss the impact of the fee structure on the optimal investment strategies of variable annuity policyholders. 

Note: Refreshments will be served to those who attend in person in Vincent Hall.

Adriana Ocejo
Assistant Professor
Department of Mathematics and Statistics
University of North Carolina Charlotte

About the lecture

Professor Ocejo and her colleagues study a portfolio optimization problem involving the loss averse policyholder of a variable annuity with a guaranteed minimum maturity benefit. This financial guarantee is financed via a fee withdrawn directly from the investment account, which affects the net investment return. A fair pricing constraint is defined in terms of the risk-neutral value of the final contract payout. The researchers propose a new fee structure that adjusts to the investment mix maximizing policyholder’s utility while keeping the contract fairly priced.

Ocejo and her team seek the investment strategy that maximizes the policyholder’s expected utility of terminal wealth after the application of a financial guarantee and subject to the fair pricing constraint. They assume that the policyholder’s risk attitude is relative to a reference level, risk seeking towards losses and risk-averse towards gains. The researchers solve the associated constrained stochastic control problem using a martingale approach and analyze the impact of the fee structure on the optimal investment strategies and payoff. Numerical results show that it is possible to find an optimal portfolio for a wide range of fees, while keeping the contract fairly priced.

About the Speaker

Adriana Ocejo is an assistant professor and the math honors director in the Department of Mathematics and Statistics at the University of North Carolina Charlotte. She received her Ph.D. in statistics from the University of Warwick in 2014 and her bachelor's and master's degrees in mathematics from Universidad de Sonora, Mexico. Her research focuses on mathematical finance (derivatives pricing, stochastic volatility, interest rate modeling, portfolio allocation, variable annuities, indifference pricing, reinsurance) and stochastic optimal control (optimal stopping, controlled diffusion processes, hybrid switching diffusions, martingale methods).