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Pricing Ratchet equity-indexed annuities with early surrender risk in a CIR++ model

Xiao Wei 1 Marcellino Gaudenzi 1 Antonino Zanette 1
1 MATHRISK - Mathematical Risk handling
Inria Paris-Rocquencourt, UPEM - Université Paris-Est Marne-la-Vallée, ENPC - École des Ponts ParisTech
Abstract : In connection with a problem posed by Kijima and Wong \cite{kw}, 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 which permits to obtain a first order approximation formula for the price of simple Ratchet EIAs without early surrender risk and without global minimum contract value. Numerical comparisons show the reliability of the proposed methods.
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Xiao Wei, Marcellino Gaudenzi, Antonino Zanette. Pricing Ratchet equity-indexed annuities with early surrender risk in a CIR++ model. North American Actuarial Journal, Society of Actuaries, 2013, 17 (3), pp.229-252. ⟨10.1080/10920277.2013.826126⟩. ⟨hal-00721963⟩

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