Efficient valuation of guaranteed minimum maturity benefits in regime switching jump diffusion models with surrender risk (Q2104088)

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scientific article; zbMATH DE number 7630795
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English
Efficient valuation of guaranteed minimum maturity benefits in regime switching jump diffusion models with surrender risk
scientific article; zbMATH DE number 7630795

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    Efficient valuation of guaranteed minimum maturity benefits in regime switching jump diffusion models with surrender risk (English)
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    9 December 2022
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    The paper deals with an actuarial version of the American option pricing problem. The goal is to price a contract which can be terminated at time \(\tau\), \( \tau \in (0,T]\), with a payoff \[ F_\tau + P(\tau) (G_\tau - F_\tau)^+, \] where \(P(t)\) is an increasing penalty function \[ 0 < P(t) \leq P(T)=1, \] \(G_t\) is a deterministic guaranteed minimum payoff and \(F_t\) is the account value at time \(t\). The provided model is based on the assumption that \(F_t=e^{-ct} S_t\), where \(S_t\) is a regime-switching jump diffusion process such that \(e^{-rt}S_t\) is a martingale in the pricing measure \(Q\) and that the intensity of the stopping time \(\tau\) is a diffusion process.
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    regime-switching jump diffusion model
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    GMMB
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    continuous-time Markov chain
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    surrender risk
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