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Efficient valuation of a variable annuity contract with a surrender option
- Source :
- Japan Journal of Industrial and Applied Mathematics. 37:249-262
- Publication Year :
- 2019
- Publisher :
- Springer Science and Business Media LLC, 2019.
-
Abstract
- We study the partial differential equation (PDE) approach for efficient and accurate valuation of a variable annuity (VA) contract with a surrender option. Specifically, using the Laplace–Carson Transform (LCT), we derive an analytic pricing formula for a VA contract with a surrender option which is formulated as a PDE with an optimal surrender boundary. To demonstrate the efficiency and accuracy of our approach, we show that our pricing formula efficiently provides the exact value of a VA contract. Moreover, we compare the performance of three numerical methods for Laplace inversion to find the most efficient method. Among these methods, we found that the Gaver–Stehfest method is the most efficient pricing for a VA contract with a surrender option.
- Subjects :
- Mathematical optimization
Partial differential equation
Laplace inversion
Computer science
Applied Mathematics
Numerical analysis
General Engineering
010103 numerical & computational mathematics
01 natural sciences
010101 applied mathematics
Annuity (American)
Surrender
0101 mathematics
Valuation (finance)
Subjects
Details
- ISSN :
- 1868937X and 09167005
- Volume :
- 37
- Database :
- OpenAIRE
- Journal :
- Japan Journal of Industrial and Applied Mathematics
- Accession number :
- edsair.doi...........4101d0a04dd4cc4f41c9a07421fc8e14