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Quantile hedging in a defaultable market with life insurance applications

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  • Anna Glazyrina
  • Alexander Melnikov

Abstract

The paper is devoted to quantile hedging in a market with defaultable securities. Both perfect and quantile hedging strategies are given for a European call option on a vulnerable equity. Application of quantile methodology to pricing the equity-linked life insurance contracts is demonstrated. A numerical example is provided to illustrate the effect of a default on the option price, on the probability of successful hedging, and on the insurance-related variables.

Suggested Citation

  • Anna Glazyrina & Alexander Melnikov, 2021. "Quantile hedging in a defaultable market with life insurance applications," Scandinavian Actuarial Journal, Taylor & Francis Journals, vol. 2021(3), pages 248-265, March.
    • Handle: RePEc:taf:sactxx:v:2021:y:2021:i:3:p:248-265
    DOI: 10.1080/03461238.2020.1830846
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