Hedging Guarantees in Variable Annuities Under Both Equity and Interest Rate Risks

@inproceedings{Coleman2005HedgingGI,
  title={Hedging Guarantees in Variable Annuities Under Both Equity and Interest Rate Risks},
  author={Thomas F. Coleman and Yuying Li and Maria-Cristina Patron},
  year={2005}
}
Effective hedging strategies for variable annuities are crucial for insurance companies in preventing potentially large losses. We consider discrete hedging of options embedded in guarantees with ratchet features, under both equity (including jump) risk and interest rate risk. Since discrete hedging and the underlying model considered lead to an incomplete market, we compute hedging strategies using local risk minimization. Our results suggest that risk minimization hedging, under a joint model… CONTINUE READING