Centro de Documentacion de Fundación MAPFRE - Pricing surrender risk in Ratchet equity-index annuities under regime-switching Lévy processes

MAP20170035077

Pricing surrender risk in Ratchet equity-index annuities under regime-switching Lévy processes / Adam W. Kolkiewicz, Fangyuan Sally Lin

Sumario: This article presents a numerical method of pricing the surrender risk in Ratchet equity-index annuities (EIAs). We assume that log-returns of the underlying fund belong to a class of regime-switching models where the parameters are allowed to change randomly according to a hidden Markov chain. The defining feature of these models is the fact that in each regime the characteristic function of log-returns is assumed to have an analytical form. The presented method provides an unified pricing framework within this class and includes the recently developed COS method as a particular case. This aspect of the method is particularly useful when pricing Ratchet options embedded in EIAs, for which the COS method exhibits a low rate of convergence. Our numerical results confirm that for models considered in this article the proposed approach improves convergence of the COS method without increasing the computational burden

En: North American actuarial journal. - Schaumburg : Society of Actuaries, 1997- = ISSN 1092-0277. - 04/09/2017 Tomo 21 Número 3 - 2017 , p. 433-457

1. Cálculo actuarial . 2. Matemática del seguro . I. Sally Lin, Fangyuan . II. Título.