Hedging Guarantees in Variable Annuities Under …

Hedging Guarantees in Variable AnnuitiesUnder Both Equity and Interest Rate RisksThomas F. Colemana, ,YuyingLia, Maria-Cristina Patronb,1aDepartment of Computer Science, Cornell University, Ithaca, NY 14853bCornell Theory Center - Manhattan, Cornell University, New York, NY 10004 AbstractEffective Hedging strategies for Variable Annuities are crucial for insurance compa-nies in preventing potentially large losses. We consider discrete Hedging of optionsembedded in Guarantees with ratchet features, Under both equity (including jump)risk and interest rate risk. Since discrete Hedging and the underlying model consid-ered lead to an incomplete market, we compute Hedging strategies using local riskminimization. Our results suggest that risk minimization Hedging , Under a jointmodel for the underlying and interest rate, leads to effective risk reduction. More-over, Hedging with standard options is superior to Hedging with the underlying whenboth equity and interest rate risks are appropriately words: Variable annuity, lookback option, equity risk, interest rate risk, riskminimizationClassification codes: G22, G10, G11; IE43, IM22, IM20 Corresponding author.

Hedging Guarantees in Variable Annuities Under Both Equity and Interest Rate Risks Thomas F. Coleman a,∗,YuyingLi, Maria-Cristina Patronb,1 aDepartment of Computer Science, Cornell University, Ithaca, NY 14853 bCornell Theory Center - Manhattan, Cornell University, New York, NY 10004 Abstract Effective hedging …

Loading..

Tags:

  Under, Variable, Guarantee, Annuities, Hedging, Hedging guarantees in variable annuities under

Information

Related search queries