• Title/Summary/Keyword: outside barrier option

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A JOINT DISTRIBUTION OF TWO-DIMENSIONAL BROWNIAN MOTION WITH AN APPLICATION TO AN OUTSIDE BARRIER OPTION

  • Lee, Hang-Suck
    • Journal of the Korean Statistical Society
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    • v.33 no.2
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    • pp.245-254
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    • 2004
  • This paper derives a distribution function of the terminal value and running maximum of two-dimensional Brownian motion {X($\tau$) = (X$_1$($\tau$), X$_2$ ($\tau$))', $\tau$ 〉0}. One random variable of the joint distribution is the terminal time value, X$_1$ (T). The other random variable is the maximum of the Brownian motion {X$_2$($\tau$), $\tau$〉} between time s and time t. With this distribution function, this paper also derives an explicit pricing formula for an outside barrier option whose monitoring period starts at an arbitrary date and ends at another arbitrary date before maturity.

Pricing an Outside Barrier Equity-Indexed Annuity with Flexible Monitoring Period (배리어 옵션이 내재된 지수연동형 보험상품의 가격결정)

  • Shin, Seung-Hee;Lee, Hang-Suck
    • Communications for Statistical Applications and Methods
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    • v.16 no.2
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    • pp.249-264
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    • 2009
  • 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.