Abstract:In this paper, we examine the valuations of equity-indexed annuities (EIAs) when their reference stocks distribute stochastic dividends. Due to the fact that stocks typically pay dividends at discrete times after the payment dates are announced, pricing EIAs with dividends is deemed to be practically significant. We directly model the discrete dividend payments using the jump diffusion process with regime switching, and then determine the dynamics of the stock price. The equivalent martingale measure of fair v… Show more
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