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Hedging and reserving for single-premium segregated fund contracts. (English) Zbl 1083.91518

Summary: Three methods for determining suitable provision for maturity guarantees for single-premium segregated fund contracts are compared. Actuarial reserving assumes funds are held in risk-free assets, to give a prescribed probability of meeting the guarantee liability. Dynamic hedging uses the Black-Scholes framework to determine the replicating portfolio. Static hedging assumes a counterparty is willing to sell the options required to meet the guarantee. Using a stochastic cash flow projection, we consider how to assess which approach is most profitable. The example given assumes a typical Canadian segregated fund contract.

MSC:

91B28 Finance etc. (MSC2000)
91B30 Risk theory, insurance (MSC2010)
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References:

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