Long-term equity-linked options are frequently sold by life insurers as a part of variable annuity offerings. Traditional methods for the valuation of these embedded options use simplifying assumptions, which may lead to large price errors. In this article, Alexander van Haastrecht considers a novel market-consistent framework for the risk management of variable annuities, which is able to capture the involved market risks in a more realistic way.
On equity-linked annuities
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