Risk-minimizing hedging strategy for an equity-indexed annuity under a regime switching model

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• 作者：Lin-yi Qian (1)
  Wei Wang (2)
  Rong-ming Wang (1)
  
  1. School of Finance and Statistics ; East China Normal University ; Shanghai ; 200241 ; China
  2. Department of Mathematic ; The University of Ningbo ; Ningbo ; 315211 ; China
  
• 关键词：equity ; indexed annuity ; regime switching ; risk ; minimization ; 60J70
• 刊名：Acta Mathematicae Applicatae Sinica, English Series
• 出版年：2015
• 出版时间：January 2015
• 年：2015
• 卷：31
• 期：1
• 页码：101-110
• 全文大小：237 KB
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• 刊物主题：Applications of Mathematics; Math Applications in Computer Science; Theoretical, Mathematical and Computational Physics;
• 出版者：Institute of Applied Mathematics, Chinese Academy of Sciences and Chinese Mathematical Society
• ISSN：1618-3932

文摘

The equity-indexed annuity (EIA) contract offers a proportional participation in the performance of a specified equity index, in addition to a guaranteed return on the single premium. How to manage the risk of the EIA is an important issue. This paper considers the hedging of the EIA. We assume that the parameters of the financial model depend on a continuous-time finite-state Markov chain and the Markov chain is observed, that is the Markov regime switching model. The state of the Markov chain can be interpreted as the state of an economy. Under the regime switching model, we obtain the risk-minimizing hedging strategy for the EIA.