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Article: Pricing Asian options and equity-indexed annuities with regime switching by the trinomial tree method

TitlePricing Asian options and equity-indexed annuities with regime switching by the trinomial tree method
Authors
Issue Date2010
PublisherSociety of Actuaries. The Journal's web site is located at http://www.soa.org/news-and-publications/publications/journals/naaj/naaj-detail.aspx
Citation
North American Actuarial Journal, 2010, v. 14 n. 2, p. 256-277 How to Cite?
AbstractEquity-indexed annuities (EIAs) provide investors with a minimum rate of return and at the same time the opportunity of gaining a profit that is linked to the performance of an equity index. These properties make EIAs a popular product in the market. For modeling the equity index process and calculating the price of EIAs, as the maturity of EIAs usually is long, it is more reasonable to assume that the interest rate and the volatility of the equity index are stochastic processes. One simple way is to apply the regime-switching model, which allows these parameters depending on the market situation. However, the valuation of derivatives in such models is challenging, especially for the strong path-dependent options such as Asian options. A trinomial tree model is introduced to provide an efficient way to solve this problem. The valuation of Asian options is studied and extended to Asian-option-related EIAs.
Persistent Identifierhttp://hdl.handle.net/10722/172477
ISSN
2015 SCImago Journal Rankings: 1.505
References

 

DC FieldValueLanguage
dc.contributor.authorYuen, FLen_US
dc.contributor.authorYang, Hen_US
dc.date.accessioned2012-10-30T06:22:43Z-
dc.date.available2012-10-30T06:22:43Z-
dc.date.issued2010en_US
dc.identifier.citationNorth American Actuarial Journal, 2010, v. 14 n. 2, p. 256-277en_US
dc.identifier.issn1092-0277en_US
dc.identifier.urihttp://hdl.handle.net/10722/172477-
dc.description.abstractEquity-indexed annuities (EIAs) provide investors with a minimum rate of return and at the same time the opportunity of gaining a profit that is linked to the performance of an equity index. These properties make EIAs a popular product in the market. For modeling the equity index process and calculating the price of EIAs, as the maturity of EIAs usually is long, it is more reasonable to assume that the interest rate and the volatility of the equity index are stochastic processes. One simple way is to apply the regime-switching model, which allows these parameters depending on the market situation. However, the valuation of derivatives in such models is challenging, especially for the strong path-dependent options such as Asian options. A trinomial tree model is introduced to provide an efficient way to solve this problem. The valuation of Asian options is studied and extended to Asian-option-related EIAs.en_US
dc.languageengen_US
dc.publisherSociety of Actuaries. The Journal's web site is located at http://www.soa.org/news-and-publications/publications/journals/naaj/naaj-detail.aspxen_US
dc.relation.ispartofNorth American Actuarial Journalen_US
dc.titlePricing Asian options and equity-indexed annuities with regime switching by the trinomial tree methoden_US
dc.typeArticleen_US
dc.identifier.emailYang, H: hlyang@hku.hken_US
dc.identifier.authorityYang, H=rp00826en_US
dc.description.naturelink_to_OA_fulltexten_US
dc.identifier.scopuseid_2-s2.0-77956601405en_US
dc.identifier.hkuros173063-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-77956601405&selection=ref&src=s&origin=recordpageen_US
dc.identifier.volume14en_US
dc.identifier.issue2en_US
dc.identifier.spage256en_US
dc.identifier.epage277en_US
dc.publisher.placeUnited Statesen_US
dc.identifier.scopusauthoridYuen, FL=35073271000en_US
dc.identifier.scopusauthoridYang, H=7406559537en_US
dc.customcontrol.immutablesml 130730-

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