Pricing and Hedging of Variable Annuities With Path-dependent Guarantee in Wishart Stochastic Volatility Models
Date
Authors
Da Fonseca, Jose
Patrick, Wong
Supervisor
Item type
Journal Article
Degree name
Journal Title
Journal ISSN
Volume Title
Publisher
Elsevier
Abstract
This paper presents the pricing of a path-dependent guaranteed minimum maturity benefit in the Wishart multidimensional stochastic volatility model and the Wishart affine stochastic correlation model. We derive a closed-form solution for the option price in these two models, requiring only the computation of a one-dimensional integration. Thanks to the remarkable analytical properties of these models, we also compute all sensitivities of the option price to the model parameters. An implementation illustrates the results, confirms that pricing is fast and accurate, and provides a framework for pricing and risk management of this product in Wishart stochastic volatility models.Description
Keywords
01 Mathematical Sciences, 14 Economics, 15 Commerce, Management, Tourism and Services, Statistics & Probability, 35 Commerce, management, tourism and services, 38 Economics, 49 Mathematical sciences, Path-dependent guarantee, Equity-linked annuity, Multi-asset guarantee, Wishart stochastic volatility models
Source
Insurance: Mathematics and Economics, ISSN: 0167-6687 (Print); 1873-5959 (Online), Elsevier, 123. doi: 10.1016/j.insmatheco.2025.103114
Publisher's version
Rights statement
© 2025 The Author(s). Published by Elsevier B.V. This is an open access article under the CC BY license (http://creativecommons.org/licenses/by/4.0/).