Related papers: Out-of-Model Adjustments of Variable Annuities
We analyze the relative price change of assets starting from basic supply/demand considerations subject to arbitrary motivations. The resulting stochastic differential equation has coefficients that are functions of supply and demand. We…
Variable annuities (VA) are popular insurance products. VAs provides the insured with a guaranteed accumulation rate on their premium at maturity. In addition, the insured may receive extra benefit if returns of underlying funds are high…
We use the expectation of the range of an arithmetic Brownian motion and the method of moments on the daily high, low, opening and closing prices to estimate the volatility of the stock price. The daily price jump at the opening is…
This paper concerns a local volatility model in which volatility takes two possible values, and the specific value depends on whether the underlying price is above or below a given threshold value. The model is known, and a number of…
A bubble is characterized by the presence of an underlying asset whose discounted price process is a strict local martingale under the pricing measure. In such markets, many standard results from option pricing theory do not hold, and in…
This paper considers the pricing of equity-linked life insurance contracts with death and survival benefits in a general model with multiple stochastic risk factors: interest rate, equity, volatility, unsystematic and systematic mortality.…
We analyze and calculate the early exercise boundary for a class of stationary generalized Black-Scholes equations in which the volatility function depends on the second derivative of the option price itself. A motivation for studying the…
We propose a parameter-free model for estimating the price or valuation of financial derivatives like options, forwards and futures using non-supervised learning networks and Monte Carlo. Although some arbitrage-based pricing formula…
In this paper, we study the pricing of contracts in fixed income markets under volatility uncertainty in the sense of Knightian uncertainty or model uncertainty. The starting point is an arbitrage-free bond market under volatility…
The Black-Scholes implied volatility skew at the money of SPX options is known to obey a power law with respect to the time-to-maturity. We construct a model of the underlying asset price process which is dynamically consistent to the power…
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative…
The determination of acceptability prices of contingent claims requires the choice of a stochastic model for the underlying asset price dynamics. Given this model, optimal bid and ask prices can be found by stochastic optimization. However,…
This paper proposes a market consistent valuation framework for variable annuities with guaranteed minimum accumulation benefit, death benefit and surrender benefit features. The setup is based on a hybrid model for the financial market and…
This paper extends the valuation and optimal surrender framework for variable annuities with guaranteed minimum benefits in a L\'evy equity market environment by incorporating a stochastic interest rate described by the Hull-White model.…
The Black-Scholes-Merton model is a mathematical model for the dynamics of a financial market that includes derivative investment instruments, and its formula provides a theoretical price estimate of European-style options. The model's…
There are several approaches to modeling and forecasting time series as applied to prices of commodities and financial assets. One of the approaches is to model the price as a non-stationary time series process with heteroscedastic…
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…
We investigate qualitative and quantitative behavior of a solution of the mathematical model for pricing American style of perpetual put options. We assume the option price is a solution to the stationary generalized Black-Scholes equation…
This study delves into the temporal dynamics within the equity market through the lens of bond traders. Recognizing that the riskless interest rate fluctuates over time, we leverage the Black-Derman-Toy model to trace its temporal…
To cope with the negative oil futures price caused by the COVID-19 recession, global commodity futures exchanges temporarily switched the option model from Black--Scholes to Bachelier in 2020. This study reviews the literature on…