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Research Papers

Our experts have published extensively in peer-reviewed journals. Pre-publication versions of these papers plus other working papers are available below.

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Efficient Valuation of Equity-Indexed Annuities Under Lévy Processes Using Fourier-Cosine Series

By: Geng Deng, Tim Dulaney, Craig McCann, and Mike Yan

Equity-Indexed Annuities (EIAs) are deferred annuities which accumulate value over time according to crediting formulas and realized equity index returns. We propose an efficient algorithm to value two popular crediting formulas found in EIAs - Annual Point-to-Point (APP) and Monthly Point-to-Point (MPP) - under general Lévy-process based index returns. APP contracts observe returns of referenced indexes annually and credit EIA accounts, subject to minimum and maximum returns. MPP contracts...

Structured Product Based Variable Annuities

By: Geng Deng, Tim Dulaney, Tim Husson, and Craig McCann

Recently, a new type of variable annuity has been marketed to investors which is based on structured product-like investments instead of the mutual fund-like investments found in traditional variable annuities. Embedding a structured product into a variable annuity introduces substantial complexity into an investment typically considered conservative. In this paper, we describe structured product based variable annuity (spVA) crediting formulas and how they differ from traditional VAs, value...

An Economic Analysis of Equity-Indexed Annuities

By: Craig McCann

At the request of the North American Securities Administrators Association, Dr. McCann authored a White Paper on equity-indexed annuities in support of the SEC's proposal to provide federal investor protections to purchasers of equity-indexed annuities.

Dr. McCann concluded that:
- Existing equity-indexed annuities are too complex for investors to understand.
- This complexity is designed to allow the true costs to be hidden
- The high hidden costs in equity-indexed annuities...

An Overview of Equity-Indexed Annuities

By: Craig McCann and Dengpan Luo

Equity-indexed annuities are complex investments sold by insurance companies that pay investors part of the capital appreciation in a stock index and guarantee a minimum return if the contract is held to maturity. Equity-indexed annuities to date have been regulated by state insurance commissions, rather than by the SEC and the NASD. We estimate that between 15% and 20% of the premium paid by investors in equity-indexed annuities is a transfer of wealth from unsophisticated investors to...

Annuities

By: Craig McCann and Kaye A. Thomas

Regulatory scrutiny of variable annuity sales practices and private litigation have focused on the investment risk of subaccounts, on annuity 'switching' and on the purchase of annuities within IRAs. In this paper, we demonstrate that in most situations, investors being sold annuities will pay more taxes and have less wealth in retirement as a result of the tax treatment of investments within tax-deferred annuities.

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