Efficient Pricing of Ratchet Equity-Indexed Annuities in a Variance-Gamma Economy

Laura Ballotta

North American Actuarial Journal, 2010, vol. 14, issue 3, 355-368

Abstract: In this paper we propose a new method for approximating the price of arithmetic Asian options in a Variance-Gamma (VG) economy, which is then applied to the problem of pricing equityindexed annuity contracts. The proposed procedure is an extension to the case of a VG-based model of the moment-matching method developed by Turnbull and Wakeman and Levy for the pricing of this class of path-dependent options in the traditional Black-Scholes setting. The accuracy of the approximation is analyzed against RQMC estimates for the case of ratchet equityindexed annuities with index averaging.

Date: 2010
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DOI: 10.1080/10920277.2010.10597639

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