Pricing Ratchet Equity-Indexed Annuities with Early Surrender Risk in a CIR++ Model

Xiao Wei, Marcellino Gaudenzi and Antonino Zanette

North American Actuarial Journal, 2013, vol. 17, issue 3, 229-252

Abstract: In this article we propose a lattice algorithm for pricing simple Ratchet equity-indexed annuities (EIAs) with early surrender risk and global minimum contract value when the asset value depends on the CIR++ stochastic interest rates. In addition we present an asymptotic expansion technique that permits us to obtain a first-order approximation formula for the price of simple Ratchet EIAs without early surrender risk and without a global minimum contract value. Numerical comparisons show the reliability of the proposed methods.

Date: 2013
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DOI: 10.1080/10920277.2013.826126

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