Pricing of Equity Indexed Annuity under Fractional Brownian Motion Model

Lin Xu, Guangjun Shen and Dingjun Yao

Abstract and Applied Analysis, 2014, vol. 2014, issue 1

Abstract: Fractional Brownian motion with Hurst exponent H ∈ (1/2, 1) 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.

Date: 2014
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https://doi.org/10.1155/2014/380718

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jnlaaa:v:2014:y:2014:i:1:n:380718

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