Fourier-Cosine Method for Pricing and Hedging Insurance Derivatives

Goudenège, Ludovic; Molent, Andrea; Wei, Xiao; Zanette, Antonino

doi:10.4236/tel.2018.83020

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2023

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“…Previously, it was used for European options, Bermudan options (Fang & Oosterlee, 2008) and Asian options (Zhang & Oosterlee, 2013). Recently, this method has been introduced for pricing insurance contracts in Goudenége et al (2018).…”

Section: Introductionmentioning

confidence: 99%

Fourier-Cosine Method for Pricing Equity-Indexed Annuity under Heston Model

Gu¹,

Wei²

2023

TEL

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In this paper, a pricing method based on the Fourier-Cosine series expansion is introduced for pricing equity-indexed annuities (EIAs) under the Heston model. By means of the Fourier-Cosine series expansion, the density function of the underlying indexed is recovered from its characteristic function, and then yields an efficient way for EIAs pricing. To show the accuracy of the Fourier-Cosine expansion method, numerical experiments, we provide the numerical results of EIAs price for the classical Black-Scholes model. It is shown that the computation results obtained by the Foueier-Cosine series are as accurate as those obtained by using the Monte Carlo simulation method. The Fourier-Cosine expansion method can be used to obtain the break-even participation rate under the Heston model with or without a cap in simple ratchet EIAs.

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Section: Introductionmentioning

confidence: 99%