TY - JOUR
T1 - Equity-linked annuity pricing with cliquet-style guarantees in regime-switching and stochastic volatility models with jumps
AU - Cui, Zhenyu
N1 - Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2017/5/1
Y1 - 2017/5/1
N2 - In this paper, we develop a novel and efficient transform-based method to price equity-linked annuities (ELAs), including equity-indexed annuities (EIAs) and cliquet-style payoff structures popular in the insurance market under a general class of stochastic volatility models with jumps. We utilize frame duality and density projection combined with a continuous-time Markov chain (CTMC) weak approximation scheme and spectral filtering. Contracts considered include EIAs with return guarantees of a cliquet style. Models considered include exponential Lévy processes, regime-switching Lévy processes, and stochastic volatility models with a general jump size distribution including Heston, Scott's, Hull–White, Schöbel–Zhu, and the 3/2 models. We also consider some recently proposed stochastic volatility models in the literature such as the α-Hypergeometric model, and the 4/2 model. Our framework encompasses and extends the current literature on EIAs with highly efficient and accurate valuation methods. Numerical experiments confirm our findings.
AB - In this paper, we develop a novel and efficient transform-based method to price equity-linked annuities (ELAs), including equity-indexed annuities (EIAs) and cliquet-style payoff structures popular in the insurance market under a general class of stochastic volatility models with jumps. We utilize frame duality and density projection combined with a continuous-time Markov chain (CTMC) weak approximation scheme and spectral filtering. Contracts considered include EIAs with return guarantees of a cliquet style. Models considered include exponential Lévy processes, regime-switching Lévy processes, and stochastic volatility models with a general jump size distribution including Heston, Scott's, Hull–White, Schöbel–Zhu, and the 3/2 models. We also consider some recently proposed stochastic volatility models in the literature such as the α-Hypergeometric model, and the 4/2 model. Our framework encompasses and extends the current literature on EIAs with highly efficient and accurate valuation methods. Numerical experiments confirm our findings.
KW - Cliquet-style guarantee
KW - Equity-linked annuity
KW - Jump diffusion
KW - Life insurance
KW - Regime-switching
KW - Stochastic volatility
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U2 - 10.1016/j.insmatheco.2017.02.010
DO - 10.1016/j.insmatheco.2017.02.010
M3 - Article
AN - SCOPUS:85015455046
SN - 0167-6687
VL - 74
SP - 46
EP - 62
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
ER -