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Pricing Ratchet Equity-Indexed Annuities with Early Surrender Risk in a CIR++ Model

Author

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  • Xiao Wei
  • Marcellino Gaudenzi
  • Antonino Zanette

Abstract

In this article we propose a lattice algorithm for pricing simple Ratchet equity-indexed annuities (EIAs) with early surrender risk and global minimum contract value when the asset value depends on the CIR++ stochastic interest rates. In addition we present an asymptotic expansion technique that permits us to obtain a first-order approximation formula for the price of simple Ratchet EIAs without early surrender risk and without a global minimum contract value. Numerical comparisons show the reliability of the proposed methods.

Suggested Citation

  • Xiao Wei & Marcellino Gaudenzi & Antonino Zanette, 2013. "Pricing Ratchet Equity-Indexed Annuities with Early Surrender Risk in a CIR++ Model," North American Actuarial Journal, Taylor & Francis Journals, vol. 17(3), pages 229-252.
    • Handle: RePEc:taf:uaajxx:v:17:y:2013:i:3:p:229-252
    DOI: 10.1080/10920277.2013.826126
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    Cited by:

    1. Adam W. Kolkiewicz & Fangyuan Sally Lin, 2017. "Pricing Surrender Risk in Ratchet Equity-Index Annuities under Regime-Switching Lévy Processes," North American Actuarial Journal, Taylor & Francis Journals, vol. 21(3), pages 433-457, July.
    2. Anna Battauz & Francesco Rotondi, 2022. "American options and stochastic interest rates," Computational Management Science, Springer, vol. 19(4), pages 567-604, October.
    3. Maciej Augustyniak & Mathieu Boudreault, 2017. "Mitigating Interest Rate Risk in Variable Annuities: An Analysis of Hedging Effectiveness under Model Risk," North American Actuarial Journal, Taylor & Francis Journals, vol. 21(4), pages 502-525, October.

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