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Move-based hedging of variable annuities: A semi-analytic approach

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  • Lin, X. Sheldon
  • Wu, Panpan
  • Wang, Xiao

Abstract

In this paper, we propose a semi-analytic algorithm for measuring the mean and variance of the cost associated with a two-sided move-based hedging of options written on an underlying asset whose price follows a geometric Brownian motion. Numerical examples are presented to illustrate the computational accuracy and efficiency of the algorithm. We then apply the technique to a structured product-based variable annuity with buffered protection and an annual ratchet variable annuity.

Suggested Citation

  • Lin, X. Sheldon & Wu, Panpan & Wang, Xiao, 2016. "Move-based hedging of variable annuities: A semi-analytic approach," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 40-49.
    • Handle: RePEc:eee:insuma:v:71:y:2016:i:c:p:40-49
    DOI: 10.1016/j.insmatheco.2016.07.007
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    Cited by:

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    2. Qiu, Ming & Jin, Zhuo & Li, Shuanming, 2023. "Optimal risk sharing and dividend strategies under default contagion: A semi-analytical approach," Insurance: Mathematics and Economics, Elsevier, vol. 113(C), pages 1-23.
    3. Andrea Molent, 2019. "Taxation of a GMWB Variable Annuity in a Stochastic Interest Rate Model," Papers 1901.11296, arXiv.org, revised May 2020.

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