  The guaranteed minimum withdrawal benefit (GMWB) rider, as an add on to a
variable annuity (VA), guarantees the return of premiums in the form of peri-
odic withdrawals while allowing policyholders to participate fully in any
market gains. GMWB riders represent an embedded option on the account value
with a fee structure that is different from typical financial derivatives. We
consider fair pricing of the GMWB rider from a financial economic perspective.
Particular focus is placed on the distinct perspectives of the insurer and
policyholder and the unifying relationship. We extend a decomposition of the VA
contract into components that reflect term-certain payments and embedded
derivatives to the case where the policyholder has the option to surrender, or
lapse, the contract early.
