Valuation of guaranteed annuity conversion options.
type: Item
instance of: scholarly article
title: Valuation of guaranteed annuity conversion options.
zbMATH Open document ID: 1071.91019
DOI: 10.1016/S0167-6687(03)00146-X
author: Laura Ballotta
author: Steven Haberman
published in: Insurance Mathematics \& Economics
publication date: 2003-11-16T00:00:00Z
review text: The authors study unit-linked deferred annuity contracts purchased originally by a single premium. They introduce a theoretical model for the pricing and valuation of guaranteed annuity conversion options associated with certain deferred annuity pension-type contracts in UK. The approach exploits the traditional option valuation procedure in order to provide indications in terms of pricing, reserving and hedging of the guaranteed annuity option contract. The option pricing approach that is proposed is based on similarity between the payoff structure of the contract under consideration and a call option written on a coupon-bearing bond. The model makes use of a one-factor Heath-Jarrow-Morton framework for the term structure of interest rates. Two alternative formulations of the HJM framework are given based on different specifications for the forward rate volatility. Under the additional assumption of an unsystematic mortality risk , independent of the financial risk, a general pricing framework is proposed and closed analytical formulae for the value of the guaranteed annuity options are obtained. Some numerical results and sensitivity analysis are presented.
Mathematics Subject Classification ID: 91G20
Mathematics Subject Classification ID: 91B30
zbMATH DE Number: 2004036
zbMATH Keywords: risk-neutral valuation
zbMATH Keywords: Heath-Jarrow-Morton model
reviewed by: Yuliya S. Mishura
MaRDI profile type: Publication
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full work available at URL: s0167-6687(03)00146-x
OpenAlex ID: W2134434414
description: scientific article; zbMATH DE number 2004036