Valuing equity-linked death benefits in a regime-switching framework

Siu, CC; Yam, SCP; Yang, H

Valuing equity-linked death benefits in a regime-switching framework

Siu, CC Yam, SCP Yang, H

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Publication Type:: Journal Article
Citation:: ASTIN Bulletin, 2014, 45 (2), pp. 355 - 395
Issue Date:: 2014-12-16

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Field	Value	Language
dc.contributor.author	Siu, CC	en_US
dc.contributor.author	Yam, SCP	en_US
dc.contributor.author	Yang, H	en_US
dc.date.issued	2014-12-16	en_US
dc.identifier.citation	ASTIN Bulletin, 2014, 45 (2), pp. 355 - 395	en_US
dc.identifier.issn	0515-0361	en_US
dc.identifier.uri	http://hdl.handle.net/10453/39036
dc.description.abstract	© 2015 by Astin Bulletin. All rights reserved. In this article, we consider the problem of computing the expected discounted value of a death benefit, e.g. in Gerber et al. (2012, 2013), in a regime-switching economy. Contrary to their proposed discounted density approach, we adopt the Laplace transform to value the contingent options. By this alternative approach, closed-form expressions for the Laplace transforms of the values of various contingent options, such as call/put options, lookback options, barrier options, dynamic fund protection and the dynamic withdrawal benefits, have been obtained. The value of each contingent option can then be recovered by the numerical Laplace inversion algorithm, and this efficient approach is documented by several numerical illustrations. The strength of our methodology becomes apparent when we tackle the valuations of exotic contingent options in the cases when (1) the contracts have a finite expiry date; (2) when the time-until-death variable is uniformly distributed in accordance with De Moivre's law.	en_US
dc.relation.ispartof	ASTIN Bulletin	en_US
dc.relation.isbasedon	10.1017/asb.2014.32	en_US
dc.subject.classification	Statistics & Probability	en_US
dc.title	Valuing equity-linked death benefits in a regime-switching framework	en_US
dc.type	Journal Article
utslib.citation.volume	2	en_US
utslib.citation.volume	45	en_US
utslib.for	0102 Applied Mathematics	en_US
utslib.for	1502 Banking, Finance and Investment	en_US
pubs.embargo.period	Not known	en_US
pubs.organisational-group	/University of Technology Sydney
pubs.organisational-group	/University of Technology Sydney/Faculty of Business
utslib.copyright.status	closed_access
pubs.issue	2	en_US
pubs.publication-status	Published	en_US
pubs.volume	45	en_US

Abstract:

© 2015 by Astin Bulletin. All rights reserved. In this article, we consider the problem of computing the expected discounted value of a death benefit, e.g. in Gerber et al. (2012, 2013), in a regime-switching economy. Contrary to their proposed discounted density approach, we adopt the Laplace transform to value the contingent options. By this alternative approach, closed-form expressions for the Laplace transforms of the values of various contingent options, such as call/put options, lookback options, barrier options, dynamic fund protection and the dynamic withdrawal benefits, have been obtained. The value of each contingent option can then be recovered by the numerical Laplace inversion algorithm, and this efficient approach is documented by several numerical illustrations. The strength of our methodology becomes apparent when we tackle the valuations of exotic contingent options in the cases when (1) the contracts have a finite expiry date; (2) when the time-until-death variable is uniformly distributed in accordance with De Moivre's law.

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http://hdl.handle.net/10453/39036