A Copula Approach for Pricing Bivariate Options with Equity-Indexed Annuities under GARCH Process
碩士 === 國立中央大學 === 財務金融研究所 === 98 === Equity Indexed Annuities (EIAs) are viewed as one of the most innovative products in the insurance market. With the rapid development of product design, how to evaluate these complex EIAs has becomes a very important topic. In this paper, we analyze the pricing f...
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| Format: | Others |
| Language: | en_US |
| Published: |
2010
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| Online Access: | http://ndltd.ncl.edu.tw/handle/47425988258527603121 |
| Summary: | 碩士 === 國立中央大學 === 財務金融研究所 === 98 === Equity Indexed Annuities (EIAs) are viewed as one of the most innovative products in the insurance market. With the rapid development of product design, how to evaluate these complex EIAs has becomes a very important topic. In this paper, we analyze the pricing for EIAs whose payoffs depending on two risky assets. Thus, we focus on the use of copula method to capture the dependence structure between these two assets. The asset dynamic is assumed to follow the NGARCH process. Based on the daily data of S&P500 and RUSSELL 2000 index from the period of Jan.2000 to Dec.2009, we find that Frank copula can better capture the dependence structure of the assets. In numerical analysis, we calculate the fair value of EIA products with maximum and minimum design separately. We compare the assumptions that interest rate is constant. The value of EIA products under stochastic interest rate is higher than that under a constant interest rate assumption. The EIA value will be higher when asset model is under a NGARCH process than that under a GARCH process.
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