Move-based hedging of variable annuities: A semi-analytic approach

In this paper, we propose a semi-analytic algorithm for measuring the mean and variance of the cost associated with a two-sided move-based hedging of options written on an underlying asset whose price follows a geometric Brownian motion. Numerical examples are presented to illustrate the computational accuracy and efficiency of the algorithm. We then apply the technique to a structured product-based variable annuity with buffered protection and an annual ratchet variable annuity.