A General Approach for Pricing Rollover Options

Christian Zimmer

Brazilian Review of Econometrics, 2007, vol. 27, issue 2

Abstract: When an insurance company sells a mutual fund with death and maturity guarantees to its client, it may consider allowing the client to extend the guarantee for some more years. If the renewal only happens once, a so-called rollover option is implied in the contract. In this paper, we show how the generalized Bermudan option can be applied to the special case of the rollover option. By avoiding the heavy mathematical tools which are necessary to prove the existence of a hedging strategy, we will focus on the calculations that are common in the Black-Scholestype analysis. Contrary to Bilodeau (1997) who analyzed the one-time renewal, we can refer to the results on the (generalized) Bermudan option for which the existence of a hedging strategy was already proved. We will see that the strike price has to be adjusted if the contract is renewed in order to explicitly calculate the price of the contract.

Date: 2007
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://periodicos.fgv.br/bre/article/view/1529 (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:sbe:breart:v:27:y:2007:i:2:a:1529

Access Statistics for this article

Brazilian Review of Econometrics is currently edited by Daniel Monte

More articles in Brazilian Review of Econometrics from Sociedade Brasileira de Econometria - SBE Contact information at EDIRC.
Bibliographic data for series maintained by Núcleo de Computação da FGV EPGE ().