Faculty of Business, Economics and Law (Te Ara Pakihi, Te Ōhanga Me Te Ture)

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The Faculty of Business, Economics and Law - Te Ara Pakihi, Te Ōhanga Me Te Ture is committed to conducting research that matters. Research that matters is both research of high academic quality and impact, and research of relevance and value for business, the professions, government and society. The Faculty of Business, Economics and Law, comprises The Business School - Te Kura Kaipakihi and The Law School - Te Kura Ture.

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Pricing Guaranteed Annuity Options in a Linear-Rational Wishart Mortality Model
(Elsevier BV, 2024-01-22) Da Fonseca, José
This paper proposes a new model, the linear-rational Wishart model, which allows the joint modelling of mortality and interest rate risks. Within this framework, we obtain closed-form solutions for the survival bond and the survival floating rate bond. We also derive a closed-form solution for the guaranteed annuity option, i.e., an option on a sum of survival (floating rate) bonds, which can be computed explicitly up to a one-dimensional numerical integration, independent of the model dimension. Using realistic parameter values, we provide a model implementation for these complex derivatives that illustrates the flexibility and efficiency of the linear-rational Wishart model.