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Pricing inflation-linked variable annuities under stochastic interest rates

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  • Tiong, Serena

Abstract

Equities have long been dubbed the natural hedge against inflation. However, empirical findings have implied just the opposite, that there exists a negative correlation between stock returns and inflation. The rising inflation and slowing economic growth that we are experiencing in today’s market environment pose an even greater threat to the general investors, especially on their retirement planning. In this paper, we present various inflation-linked variable annuities which are designed to help investors protect their portfolios from inflation risk. Assuming a Gaussian HJM framework for the nominal and real term structures, closed-form pricing formulas are obtained for these inflation-linked annuity products.

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  • Tiong, Serena, 2013. "Pricing inflation-linked variable annuities under stochastic interest rates," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 77-86.
    • Handle: RePEc:eee:insuma:v:52:y:2013:i:1:p:77-86
    DOI: 10.1016/j.insmatheco.2012.11.003
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    Cited by:

    1. Chiarella, Carl & Da Fonseca, José & Grasselli, Martino, 2014. "Pricing range notes within Wishart affine models," Insurance: Mathematics and Economics, Elsevier, vol. 58(C), pages 193-203.
    2. Mei-Ling Tang & Ting-Pin Wu & Ming-Chin Hung, 2022. "Optimal Pension Fund Management with Foreign Investment in a Stochastic Environment," Mathematics, MDPI, vol. 10(14), pages 1-21, July.
    3. Liang, Xiaoqing & Tsai, Cary Chi-Liang & Lu, Yi, 2016. "Valuing guaranteed equity-linked contracts under piecewise constant forces of mortality," Insurance: Mathematics and Economics, Elsevier, vol. 70(C), pages 150-161.
    4. Liang, Zongxia & Sheng, Wenlong, 2016. "Valuing inflation-linked death benefits under a stochastic volatility framework," Insurance: Mathematics and Economics, Elsevier, vol. 69(C), pages 45-58.
    5. Calisto Guambe & Rodwell Kufakunesu, 2017. "Optimal investment-consumption and life insurance selection problem under inflation. A BSDE approach," Papers 1711.01760, arXiv.org.
    6. Tang, Mei-Ling & Chen, Son-Nan & Lai, Gene C. & Wu, Ting-Pin, 2018. "Asset allocation for a DC pension fund under stochastic interest rates and inflation-protected guarantee," Insurance: Mathematics and Economics, Elsevier, vol. 78(C), pages 87-104.

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