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

Lin yi Qian; Wei Wang; Rong ming Wang

doi:10.1007/s10255-012-0176-0

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

Lin yi Qian
, Wei Wang
, Rong ming Wang^*

^*Corresponding author for this work

School of Statistics

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	101-110
Number of pages	10
Journal	Acta Mathematicae Applicatae Sinica
Volume	31
Issue number	1
DOIs	https://doi.org/10.1007/s10255-012-0176-0
State	Published - 1 Jan 2015

Keywords

equity-indexed annuity
regime switching
risk-minimization

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10.1007/s10255-012-0176-0

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

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