Valuing equity-linked death benefits in jump diffusion models
By Hans U. Gerber, E. Shiu, Hailiang Yang. 2013
59 citations recorded by the source corpus.
Abstract The paper is motivated by the valuation problem of guaranteed minimum death benefits in various equity-linked products. At the time of death, a benefit payment is due. It may depend not only on the price of a stock or stock fund at that time, but also on prior prices. The problem is to calculate the expected discounted value of the benefit payment. Because the distribution of the time of death can be approximated by a combination of exponential distributions, it suffices to solve the problem for an exponentially distributed time of death. The stock price process is assumed to be the exponential of a Brownian motion plus an independent compound Poisson process whose upward and downward jumps are modeled by combinations (or mixtures) of exponential distributions. Results for exponential stopping of a Levy process are used to derive a series of closed-form formulas for call, put, lookback, and barrier options, dynamic fund protection, and dynamic withdrawal benefit with guarantee. We also discuss how barrier options can be used to model lapses and surrenders.
Subfields: Demography, Finance, Management Science and Operations Research
View Paper: https://www.semanticscholar.org/paper/2cd389ab642c2b4ab84890d76ad59bfc9779abf5
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In Demography
In Finance
In Management Science and Operations Research
Citations in the corpus
- Valuation of large variable annuity portfolios under nested simulation: A functional data approach (2015, background): “Gerber et al. (2013) proposed amethod based on discounted joint density function to price theGMDB rider.”