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http://dx.doi.org/10.5351/CKSS.2009.16.2.249

Pricing an Outside Barrier Equity-Indexed Annuity with Flexible Monitoring Period  

Shin, Seung-Hee (National Pension Research Institute)
Lee, Hang-Suck (Dept. of Actuarial Science/Mathematics, Sungkyunkwan Univ.)
Publication Information
Communications for Statistical Applications and Methods / v.16, no.2, 2009 , pp. 249-264 More about this Journal
Abstract
Equity-indexed annuities(EIAs) provide their customers with the greater of either the return linked to the underlying index or the minimum guaranteed return. Insurance companies have developed EIAs to attract customers reluctant to buy traditional fixed annuities because of low returns and also reluctant to buy mutual funds for fear of the high volatility in the stock market. This paper proposes a new type of EIA embedded with an outside barrier option with flexible monitoring period in order to increase its participation rate. It also derives an explicit pricing formula for this proposed product, and discusses numerical examples to show relationships among participation rate, barrier level, index volatility and correlation.
Keywords
Equity-indexed annuities; minimum guaranteed return; outside barrier option; participation rate;
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Times Cited By KSCI : 2  (Citation Analysis)
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