Valuing the Guaranteed Minimum Death Benefit Clause with

5 In this paper we give a method for computing the fair insurance fee associated with the 6 guaranteed minimum death benefit (GMDB) clause included in many variable annuity contracts. 7 We allow for partial withdrawals, a common feature in most GMDB contracts, and determine 8 how this affects the GMDB fair insurance charge. Our method models the GMDB pricing 9 problem as an impulse control problem. The resulting quasi-variational inequality is solved 10 numerically using a fully implicit penalty method. The numerical results are obtained under 11 both constant volatility and regime-switching models. A complete analysis of the numerical 12 procedure is included. We show that the discrete equations are stable, monotone and consistent 13 and hence obtain convergence to the unique, continuous viscosity solution, assuming this exists. 14 Our results show that the addition of the partial withdrawal feature significantly increases the 15 fair insurance charge for GMDB contracts. 16