Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5076645 | Insurance: Mathematics and Economics | 2014 | 12 Pages |
Abstract
This paper analyzes the application of quantile hedging on equity-linked life insurance contracts in the presence of transaction costs. Following the time-based replication strategy, we present the explicit expressions for the present values of expected hedging errors and transaction costs. The results are derived by using the adjusted hedging volatility ÏÌ proposed by Leland. Furthermore, the estimated values of expected hedging errors, transaction costs and total costs are obtained from a simulation approach for comparison. Finally, the costs of maturity guarantee for equity-linked life insurance contracts inclusive of transaction costs are discussed.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Alexander Melnikov, Shuo Tong,