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Efficient pricing of ratchet equity indexed annuities in a Variance-Gamma economy. (English) Zbl 1219.91136

Summary: 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.

MSC:

91G20 Derivative securities (option pricing, hedging, etc.)
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