A multi-asset Monte Carlo simulation model for the valuation of variable annuities

A variable annuity is an insurance contract that contains financial guarantees. Due to the complexity of guarantees, there are no closed-form formulas to calculate the value of these guarantees. Insurance companies rely heavily on Monte Carlo simulation to calculate the value of the guarantees. However, almost all simulation software for variable annuity is proprietary, posing a substantial barrier to academic researchers who want to study the computational problems related to variable annuity. In this paper, we present a multi-asset Monte Carlo simulation model by using fund mappings and economic scenario generators. The simulation model is realistic in the sense that it reflects the current practice in industry. We also implement the simulation model in Java as open source software, which can be used by students and researchers to investigate the computational problems arising from the variable annuity area.