Valuation of equity-indexed annuity under stochastic mortality and interest rate |
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| Authors: | Linyi Qian Wei Wang Yincai Tang |
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| Affiliation: | a School of Finance and Statistics, East China Normal University, Shanghai 200241, PR Chinab Research Center of International Finance and Risk Management, East China Normal University, Shanghai 200241, PR Chinac School of Mathematics and System Sciences, Shandong University, Jinan 250100, PR China |
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| Abstract: | An equity-indexed annuity (EIA) contract offers a proportional participation in the return on a specified equity index, in addition to a guaranteed return on the single premium. In this paper, we discuss the valuation of equity-indexed annuities under stochastic mortality and interest rate which are assumed to be dependent on each other. Employing the method of change of measure, we present the pricing formulas in closed form for the most common product designs: the point-to-point and the annual reset. Finally, we conduct several numerical experiments, in which we analyze the relationship between some parameters and the pricing of EIAs. |
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| Keywords: | Equity-indexed annuity Stochastic mortality Stochastic interest rate |
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