Annuity contract valuation under dependent risks

Zhao, Yixing; Mamon, Rogemar

doi:10.1007/s13160-019-00366-2

Cited by 4 publications

(1 citation statement)

References 23 publications

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“…Our construction of the numerical and analytic approximations underlines a commitment to financial practice and addresses the implementation concerns of industrial end users. New developments in the analysis and valuation of long-term insurance contracts with correlated risk factors described by ATSMs (e.g., [37] and [38]) as well as dynamic investment protection plan [17] could benefit further from the introduction of regime-switching features of this paper.…”

Section: 2mentioning

confidence: 99%

Bond pricing formulas for Markov-modulated affine term structure models

Rodrigo¹,

Mamon²

2021

JIMO

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This article provides new developments in characterizing the class of regime-switching exponential affine interest rate processes in the context of pricing a zero-coupon bond. A finite-state Markov chain in continuous time dictates the random switching of time-dependent parameters of such processes. We present exact and approximate bond pricing formulas by solving a system of partial differential equations and minimizing an error functional. The bond price expression exhibits a representation that shows how it is explicitly impacted by the rate matrix and the time-dependent coefficient functions of the short rate models. We validate the bond pricing formulas numerically by examining a regime-switching Vasicek model.

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Section: 2mentioning

confidence: 99%