Quantile hedging for guaranteed minimum death benefits |
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| Affiliation: | Department of Mathematics, Wayne State University, Detroit, MI, 48202, United States;National Kaohsiung First University of Science and Technology, Taiwan, ROC;Institut für Mathematik, MA 7-5, Fakultät II, Technische Universität Berlin, Straße des 17. Juni 136, 10623 Berlin, FRG;College of Economic Mathematics, Southwestern University of Finance and Economics, Chengdu, Sichuan 611130, PR China;Université d’Évry Val d’Essonne, Laboratoire de Mathématiques et Modélisation d’Évry, 91037 Évry Cedex, France |
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| Abstract: | Quantile hedging for contingent claims is an active topic of research in mathematical finance. It plays a role in incomplete markets when perfect hedging is not possible. Guaranteed minimum death benefits (GMDBs) are present in many variable annuity contracts, and act as a form of portfolio insurance. They cannot be perfectly hedged due to the mortality component, except in the limit as the number of contracts becomes infinitely large. In this article, we apply ideas from finance to derive quantile hedges for these products under various assumptions. |
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