Pricing a guaranteed annuity option under correlated and regime-switching risk factors

Bond pricing formulas for Markov-modulated affine term structure models

“…The issue of choosing the appropriate martingale measures, akin to valuing bonds under the Vasicek and CIR models with regime switching, is dealt with in Elliott, et al [13]. Recently, regime-switching affine models also started to penetrate the research area of annuity and longevity product valuation within the aim of jointly modeling interest and mortality risks (e.g., [19,20]). We note that the Markov switching of regimes in a model can alternatively be formulated via a marked point process (see Last and Brandt [26] for the pertinent notion).…”