Embedded Options in Pension Plans, pp. 6-7 and 28-60


#1

Reading Source:
https://www.soa.org/Files/Research/Projects/research-emb-opt-val-cash-report.pdf

Topics Covered in this Reading:

  • Background
  • Can Traditional Actuarial Approaches Be Improved for Managing Investment Guarantees
  • Generic Valuation Approaches
    • Basic Concepts: Complete Markets, the No-arbitrage Principle and Risk-Neutral Pricing
  • Valuation of Guarantee 1a - “Money-Back” Guarantee
    • Model Assumptions and Notations
    • Sample Illustration of Guarantee Payoff
    • Valuation of Money-Back Guarantee Using Closed-Form Adaptation of Black-Scholes Formula
    • Numerical Analysis
    • Observations
    • Monte-Carlo Simulation Analysis
    • Results
    • Possible Hedging and Risk Management Strategies
  • Valuation of Guarantee 1b - “Enhanced Money-Back Guarantee”
  • Valuation of Guarantee 2
    • Model Assumptions and Notations
    • Sample Illustration of Guarantee Payoff
    • Valuation of the Annual Minimum Interest Rate Guarantee Using Monte Carlo Simulation
    • Numerical Analysis
    • Observations
    • Monte-Carlo Simulation Analysis
    • Possible Hedging and Risk Management Strategies