Abstract:
Over the past two decades, the development of Asian options in the financial market has inspired theorists to pursue various methods and techniques for pricing. Among many other contributions in the literature, Yor's work on this issue has led to the study of exponential functional of geometric Brownian motion and the integral of geometric Brownian motion.
Around the same time the insurance market has also experienced dramatic shift from traditional life products to investment-combined products. In order to compete with mutual funds, nearly all insurers in the variable annuity market offer various forms of investment guarantees, nicknamed by some as Titanic options. Although there is no apparent resemblance in the payoffs of Titanic option and Asian option, we found that the techniques used for the analysis of the integral of geometric Brownian motion can be extended to calculate risk measures for investment guarantees. In this work, we present an exact calculation approach to determine risk capitals as an alternative to the current market practice of Monte Carlo simulations.
The talk will provide an introduction to Asian option, variable annuity investment guarantees as well as basics of risk measures. Audiences of all backgrounds are welcomed.