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Pricing Discrete Dynamic Fund Protections

Author

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  • Hon-Kwok Fung
  • Leong Kwan Li

Abstract

The authors investigate the pricing of discretely monitored dynamic fund protections when the fund price follows a lognormal process or a constant elasticity of variance (CEV) process. A backward recursive pricing formula is derived. By employing a numerical technique that combines function approximation and numerical quadrature, the authors demonstrate how to complete each recursion level efficiently. Numerical experiments show that the results compare favorably with those obtained by other pricing methods.

Suggested Citation

  • Hon-Kwok Fung & Leong Kwan Li, 2003. "Pricing Discrete Dynamic Fund Protections," North American Actuarial Journal, Taylor & Francis Journals, vol. 7(4), pages 23-31.
    • Handle: RePEc:taf:uaajxx:v:7:y:2003:i:4:p:23-31
    DOI: 10.1080/10920277.2003.10596115
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    Cited by:

    1. Moore, Kristen S., 2009. "Optimal surrender strategies for equity-indexed annuity investors," Insurance: Mathematics and Economics, Elsevier, vol. 44(1), pages 1-18, February.
    2. Linyi Qian & Zhuo Jin & Wei Wang & Lyu Chen, 2018. "Pricing dynamic fund protections for a hyperexponential jump diffusion process," Communications in Statistics - Theory and Methods, Taylor & Francis Journals, vol. 47(1), pages 210-221, January.
    3. Chu, Chi Chiu & Kwok, Yue Kuen, 2004. "Reset and withdrawal rights in dynamic fund protection," Insurance: Mathematics and Economics, Elsevier, vol. 34(2), pages 273-295, April.

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