17 research outputs found

    An identity of hitting times and its application to the valuation of guaranteed minimum withdrawal benefit

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    In this paper we explore an identity in distribution of hitting times of a finite variation process (Yor's process) and a diffusion process (geometric Brownian motion with affine drift), which arise from various applications in financial mathematics. As a result, we provide analytical solutions to the fair charge of variable annuity guaranteed minimum withdrawal benefit (GMWB) from a policyholder's point of view, which was only previously obtained in the literature by numerical methods. We also use complex inversion methods to derive analytical solutions to the fair charge of the GMWB from an insurer's point of view, which is used in the market practice, however, based on Monte Carlo simulations. Despite of their seemingly different formulations, we can prove under certain assumptions the two pricing approaches are equivalent.Comment: 25 pages, 2 figure

    Optimal Dividend Payments for the Piecewise-Deterministic Poisson Risk Model

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    This paper considers the optimal dividend payment problem in piecewise-deterministic compound Poisson risk models. The objective is to maximize the expected discounted dividend payout up to the time of ruin. We provide a comparative study in this general framework of both restricted and unrestricted payment schemes, which were only previously treated separately in certain special cases of risk models in the literature. In the case of restricted payment scheme, the value function is shown to be a classical solution of the corresponding HJB equation, which in turn leads to an optimal restricted payment policy known as the threshold strategy. In the case of unrestricted payment scheme, by solving the associated integro-differential quasi-variational inequality, we obtain the value function as well as an optimal unrestricted dividend payment scheme known as the barrier strategy. When claim sizes are exponentially distributed, we provide easily verifiable conditions under which the threshold and barrier strategies are optimal restricted and unrestricted dividend payment policies, respectively. The main results are illustrated with several examples, including a new example concerning regressive growth rates.Comment: Key Words: Piecewise-deterministic compound Poisson model, optimal stochastic control, HJB equation, quasi-variational inequality, threshold strategy, barrier strateg

    Some remarks on Arslan’s 2011 paper

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