Pricing surrender risk in Ratchet equity-index annuities under regime-switching Lévy processes

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<title>Pricing surrender risk in Ratchet equity-index annuities under regime-switching Lévy processes</title>
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<namePart>Sally Lin, Fangyuan</namePart>
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<abstract displayLabel="Summary">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.</abstract>
<note type="statement of responsibility">Adam W. Kolkiewicz, Fangyuan Sally Lin</note>
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<topic>Cálculo actuarial</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080602437">
<topic>Matemática del seguro</topic>
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<title>North American actuarial journal</title>
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<publisher>Schaumburg : Society of Actuaries, 1997-</publisher>
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<identifier type="issn">1092-0277</identifier>
<identifier type="local">MAP20077000239</identifier>
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<text>04/09/2017 Tomo 21 Número 3 - 2017 , p. 433-457</text>
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