Efficient Pricing of Ratchet Equity-Indexed Annuities in a Variance-Gamma Economy

Abstract

This is the accepted version of the paper.This version of the publication may differ from the final published version. Permanent AbstractIn this paper we propose a new method for approximating the price of arithmetic Asian options in a VG economy which is then applied to the problem of pricing Equity Indexed Annuity contracts. The proposed procedure is an extension to the case of a VG-based model of the moment-matching method developed by Turnbull and Wakeman (1991) and Levy (1992) for the pricing of this class of path-dependent options in the traditional Black-Scholes setting. The accuracy of the approximation is analysed against RQMC estimates for the case of ratchet Equity Indexed Annuities with index averaging.

Fourier based methods for the management of complex life insurance products

“…Ratchet designs have been discussed also in Lin and Tan (2003) and Kijima and Wong (2007). Modelling based on Lévy processes for the valuation of life insurance policies has been introduced by Ballotta (2005), and further explored in Ballotta (2009Ballotta ( , 2010, Bacinello et al (2016), Kélani and Quittard-Pinon (2017) and Alonso-Garcia et al (2018) amongst others.…”

Valuation of reverse convertibles in the variance gamma economy

“…For three explicit examples of the discrepancies, see Madan et al (1998), Ballotta (2010)and Jaimungal (2004). 9 For a discussion of barrier options in the Black-Scholes model, see Hull (2011).…”