English, Article edition: VALUATION OF GUARANTEED ANNUITY OPTIONS IN AFFINE TERM STRUCTURE MODELS CHI CHIU CHU; YUE KUEN KWOK

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Bookmark: http://trove.nla.gov.au/version/83412
Physical Description
  • article
Language
  • English

Edition details

Title
  • VALUATION OF GUARANTEED ANNUITY OPTIONS IN AFFINE TERM STRUCTURE MODELS
Author
  • CHI CHIU CHU
  • YUE KUEN KWOK
Physical Description
  • article
Notes
  • We propose three analytic approximation methods for numerical valuation of the guaranteed annuity options in deferred annuity pension policies. The approximation methods include the stochastic duration approach, Edgeworth expansion, and analytic approximation in affine diffusions. The payoff structure in the annuity policies is similar to a quanto call option written on a coupon-bearing bond. To circumvent the limitations of the one-factor interest rate model, we model the interest rate dynamics by a two-factor affine interest rate term structure model. The numerical accuracy and the computational efficiency of these approximation methods are analyzed. We also investigate the value sensitivity of the guaranteed annuity option with respect to different parameters in the pricing model.
  • Guaranteed annuity option, affine term structure models, coupon-bond options, stochastic duration, Edgeworth approximation, affine approximation
  • RePEc:wsi:ijtafx:v:10:y:2007:i:02:p:363-387
Language
  • English
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