Equity-linked annuity valuation under fractional jump-diffusion financial and mortality models

Haoran Jiang, Zhehao Zhang*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The valuation of equity-linked annuity (EIA) has been extensively studied, while few papers consider the impact of long-range dependence (LRD) features on financial and mortality dynamics in EIAs' valuation. To characterise the LRD feature, we adopt the fractional Brownian motion (FBM) in modelling the dynamics of asset prices and mortality intensities, in which clustering jumps are captured by the compound Hawkes process. Besides, the interest rate dynamic is driven by the FBM and correlates to the asset price dynamic. Numerical analyses show that ignorance of the LRD feature and the jump component in the modelling framework could lead to a potential deficiency in the reserve and solvency capital of EIA policies.

Original languageEnglish
JournalScandinavian Actuarial Journal
DOIs
Publication statusAccepted/In press - 2024

Keywords

  • change of measure
  • Equity-indexed annuities
  • fractional Brownian motion
  • Hawkes process
  • long-range dependence

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