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An Effective Bias-Corrected Bagging Method For The Valuation Of Large Variable Annuity Portfolios

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  • Gweon, Hyukjun
  • Li, Shu
  • Mamon, Rogemar

Abstract

To evaluate a large portfolio of variable annuity (VA) contracts, many insurance companies rely on Monte Carlo simulation, which is computationally intensive. To address this computational challenge, machine learning techniques have been adopted in recent years to estimate the fair market values (FMVs) of a large number of contracts. It is shown that bootstrapped aggregation (bagging), one of the most popular machine learning algorithms, performs well in valuing VA contracts using related attributes. In this article, we highlight the presence of prediction bias of bagging and use the bias-corrected (BC) bagging approach to reduce the bias and thus improve the predictive performance. Experimental results demonstrate the effectiveness of BC bagging as compared with bagging, boosting, and model points in terms of prediction accuracy.

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  • Gweon, Hyukjun & Li, Shu & Mamon, Rogemar, 2020. "An Effective Bias-Corrected Bagging Method For The Valuation Of Large Variable Annuity Portfolios," ASTIN Bulletin, Cambridge University Press, vol. 50(3), pages 853-871, September.
    • Handle: RePEc:cup:astinb:v:50:y:2020:i:3:p:853-871_7
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    Cited by:

    1. Hyukjun Gweon & Shu Li & Yangxuan Xu, 2024. "Use of Prediction Bias in Active Learning and Its Application to Large Variable Annuity Portfolios," Risks, MDPI, vol. 12(6), pages 1-14, May.
    2. Gweon, Hyukjun & Li, Shu, 2021. "Batch mode active learning framework and its application on valuing large variable annuity portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 99(C), pages 105-115.
    3. Jiang, Ruihong & Saunders, David & Weng, Chengguo, 2023. "Two-phase selection of representative contracts for valuation of large variable annuity portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 293-309.
    4. Nguyen, Hang & Sherris, Michael & Villegas, Andrés M. & Ziveyi, Jonathan, 2024. "Scenario selection with LASSO regression for the valuation of variable annuity portfolios," Insurance: Mathematics and Economics, Elsevier, vol. 116(C), pages 27-43.
    5. Wing Fung Chong & Haoen Cui & Yuxuan Li, 2021. "Pseudo-Model-Free Hedging for Variable Annuities via Deep Reinforcement Learning," Papers 2107.03340, arXiv.org, revised Oct 2022.

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