Pricing and Hedging Guaranteed Annuity Options via Static Option Replication
نویسندگان
چکیده
منابع مشابه
Pricing and hedging guaranteed annuity options via static option replication
In this paper we derive a market value for with-profits guaranteed annuity options (GAOs) using martingale modelling techniques. Furthermore, we show how to construct a static replicating portfolio of vanilla interest rate swaptions that replicates the with-profits GAO. Finally, we illustrate with historical UK interest rate data from the period 1980 to 2000 that the static replicating portfoli...
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Convexity correction arises when one computes the expected value of an interest rate index under a probability measure other than its own natural martingale measure. As a typical example, the natural martingale measure of the swap rate is the swap measure with annuity as the numeraire. However, the evaluation of the discounted expectation of the payoff in a constant maturity swap (CMS) derivati...
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Under a guaranteed annuity option, an insurer guarantees to convert a policyholder’s accumulated funds to a life annuity at a fixed rate when the policy matures. If the annuity rates provided under the guarantee are more beneficial to the policyholder than the prevailing rates in the market the insurer has to make up the difference. Such guarantees are common in many US tax sheltered insurance ...
متن کاملConvexity meets replication: hedging of swap derivatives and annuity options
Convexity correction arises when one computes the expected value of an interest rate index under a probability measure other than its own natural martingale measure. As a typical example, the natural martingale measure of the swap rate is the swap measure with annuity as the numeraire. However, the evaluation of the discounted expectation of the payoff in a constant maturity swap (CMS) derivati...
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In this chapter, we consider a theoretical model for the pricing and valuation of guaranteed annuity conversion options associated with certain unit-linked pension contracts in the UK. The valuation approach is based on the similarity between the payoff structure of the contract and a call option written on a coupon-bearing bond. The model makes use of a one-factor Heath-Jarrow-Morton framework...
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ژورنال
عنوان ژورنال: SSRN Electronic Journal
سال: 2002
ISSN: 1556-5068
DOI: 10.2139/ssrn.307019