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Pricing of Equity Indexed Annuity under Fractional Brownian Motion Model

Author

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  • Lin Xu
  • Guangjun Shen
  • Dingjun Yao

Abstract

Fractional Brownian motion with Hurst exponent is a good candidate for modeling financial time series with long-range dependence and self-similarity. The main purpose of this paper is to address the valuation of equity indexed annuity (EIA) designs under the market driven by fractional Brownian motion. As a result, this paper presents an explicit pricing expression for point-to-point EIA design and bounds for the pricing of high-water-marked EIA design. Some numerical examples are given to illustrate the impact of the parameters involved in the pricing problems.

Suggested Citation

  • Lin Xu & Guangjun Shen & Dingjun Yao, 2014. "Pricing of Equity Indexed Annuity under Fractional Brownian Motion Model," Abstract and Applied Analysis, Hindawi, vol. 2014, pages 1-9, April.
    • Handle: RePEc:hin:jnlaaa:380718
    DOI: 10.1155/2014/380718
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