Quantil Hedging for telegraph markets and its applications to a pricing of equity-linked life insurance contracts

Nikita Ratanov ()

No 3410, Borradores de Investigación from Universidad del Rosario

Abstract: In this paper we develop a financial market model based on continuous time random motions with alternating constant velocities and with jumps occurrng when the velocity switches. If jump directions are in the certain correspondence with the velocity directions of the underlyig random motion with respect to the interest rate, the model is free of arbitrage and complete. Closed form formulas for the option prices and perfect hedging strategies are obtained.The quantile hedging strategies for options are constructed. This methodology is applied to the pricing and risk control of insurance instruments.************************************************************************************************************En este documento está desarrollado un modelo de mercado financiero basado en movimientos aleatorios con tiempo continuo, con velocidades constantes alternates y saltos cuando hay cambios en la velocidad. Si los saltos en la dirección tienen correspondencia con la dirección de la velocidad del comportamiento aleatorio subyacente, con respecto a la tasa interés, el modelo no presenta arbitraje y es completo. Se contruye en detalle las estrategias replicables para opciones y se obtiene una representación cerrada para el precio de las opciones.Las estrategias de cubrimiento quantile para opciones son construidas. Esta metodología es aplicada al control de riesgo y fijación de precios de instrumentos de seguros.

Keywords: jump telegraph model; perfect hedging; quantile hedging; pure endowment; equity-linked life insurance (search for similar items in EconPapers)
JEL-codes: D81 G10 G12 (search for similar items in EconPapers)
Pages: 21
Date: 2005-04-01
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:col:000091:003410

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