This grant has produced a paper, co-authored with Kamphol Panyagometh of York University, entitled "Variable Annuities versus Mutual Funds: A Monte Carlo Analysis of the Options" which has been submitted to Financial Services Review. A summary version will also be submitted to the Journal of Financial Planning.
This paper uses Monte Carlo simulation techniques to compare variable annuities and mutual funds. The mutual fund investor is assumed to fully exercise the option to realize losses for tax purposes. The researchers find that low-cost mutual funds outperform low-cost variable annuities for investors with time horizons of less than 10 years when the mutual fund tax option is exercised. For investors who do not exercise the mutual fund tax option low-cost variable annuities outperform low-cost mutual funds for time horizons as short as 4 years.
