Efficient pricing of ratchet equity-indexed annuities in a variance-gamma economy

Ballotta, L. (2010). Efficient pricing of ratchet equity-indexed annuities in a variance-gamma economy. North American Actuarial Journal, 14(3), pp. 355-368. doi: 10.1080/10920277.2010.10597639

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In this paper we propose a new method for approximating the price of arithmetic Asian options in a Variance-Gamma (VG) economy, which is then applied to the problem of pricing equityindexed 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 and Levy for the pricing of this class of path-dependent options in the traditional Black-Scholes setting. The accuracy of the approximation is analyzed against RQMC estimates for the case of ratchet equityindexed annuities with index averaging.

Item Type: Article
Additional Information: This is an Accepted Manuscript of an article published by Taylor & Francis in NORTH AMERICAN ACTUARIAL JOURNAL in 2010, available online: http://wwww.tandfonline.com/10.1080/10920277.2010.10597639."
Uncontrolled Keywords: Asian options, Equity Indexed Annuities, risk neutral valuation, Randomized Quasi-Monte Carlo, variance reduction techniques.
Subjects: H Social Sciences > HG Finance
Divisions: Cass Business School > Faculty of Finance
URI: http://openaccess.city.ac.uk/id/eprint/5817

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