Related papers: Pricing Variable Annuity Contracts with High-Water…
Although not a formal pricing consideration, gap risk or hedging errors are the norm of derivatives businesses. Starting with the gap risk during a margin period of risk of a repurchase agreement (repo), this article extends the…
A variable annuity contract with Guaranteed Minimum Withdrawal Benefit (GMWB) promises to return the entire initial investment through cash withdrawals during the policy life plus the remaining account balance at maturity, regardless of the…
Perpetual American options are financial instruments that can be readily exercised and do not mature. In this paper we study in detail the problem of pricing this kind of derivatives, for the most popular flavour, within a framework in…
In this work we want to provide a general principle to evaluate the CVA (Credit Value Adjustment) for a vulnerable option, that is an option subject to some default event, concerning the solvability of the issuer. CVA is needed to evaluate…
In this paper we propose an efficient method to compute the price of multi-asset American options, based on Machine Learning, Monte Carlo simulations and variance reduction technique. Specifically, the options we consider are written on a…
In a stochastic volatility framework, we find a general pricing equation for the class of payoffs depending on the terminal value of a market asset and its final quadratic variation. This allows a pricing tool for European-style claims…
We consider economic obstacles that limit the reliability and accuracy of value-at-risk (VaR). Investors who manage large market transactions should take into account the impact of the randomness of large trade volumes on predictions of…
One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal…
In this work we present a general representation formula for the price of a vulnerable European option, and the related CVA in stochastic (either rough or not) volatility models for the underlying's price, when admitting correlation with…
We investigate the relation between the fair price for European-style vanilla options and the distribution of short-term returns on the underlying asset ignoring transaction and other costs. We compute the risk-neutral probability density…
The vast majority of works on option pricing operate on the assumption of risk neutral valuation, and consequently focus on the expected value of option returns, and do not consider risk parameters, such as variance. We show that it is…
In this paper we study time-consistent risk measures for returns that are given by a GARCH(1,1) model. We present a construction of risk measures based on their static counterparts that overcomes the lack of time-consistency. We then study…
This paper studies the stochastic modeling of market drawdown events and the fair valuation of insurance contracts based on drawdowns. We model the asset drawdown process as the current relative distance from the historical maximum of the…
The random values and volumes of consecutive trades made at the exchange with shares of security determine its mean, variance, and higher statistical moments. The volume weighted average price (VWAP) is the simplest example of such a…
Modeling taxation of Variable Annuities has been frequently neglected but accounting for it can significantly improve the explanation of the withdrawal dynamics and lead to a better modeling of the financial cost of these insurance…
Refundable income annuities (IA), such as cash-refund and instalment-refund, differ in material ways from the life-only version beloved by economists. In addition to lifetime income they guarantee the annuitant or beneficiary will receive…
A variable annuity contract with Guaranteed Minimum Withdrawal Benefit (GMWB) promises to return the entire initial investment through cash withdrawals during the contract plus the remaining account balance at maturity, regardless of the…
We analyze recently proposed mortgage contracts that aim to eliminate selective borrower default when the loan balance exceeds the house price (the ``underwater'' effect). We show contracts that automatically reduce the outstanding balance…
It is well-known that combining life annuities and death benefits introduce opposite effects in payments with respect to the mortality risk on the lifetime of the insured. In a general multi-state framework with multiple product types, such…
In the regime switching extension of Black-Scholes-Merton model of asset price dynamics, one assumes that the volatility coefficient evolves as a hidden pure jump process. Under the assumption of Markov regime switching, we have considered…