Since 2014
A General Approach for Pricing Rollover Options
Brazilian Review of Econometrics
View Archive Info| Field | Value | |
| Title |
A General Approach for Pricing Rollover Options
A General Approach for Pricing Rollover Options |
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| Creator |
Zimmer, Christian Johannes
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| Description |
When an insurance company sells a mutual fund with death and maturity guarantees to its client, it may consider allowing the client to extend the guarantee for some more years. If the renewal only happens once, a so-called rollover option is implied in the contract. In this paper, we show how the generalized Bermudan option can be applied to the special case of the rollover option. By avoiding the heavy mathematical tools which are necessary to prove the existence of a hedging strategy, we will focus on the calculations that are common in the Black-Scholestype analysis. Contrary to Bilodeau (1997) who analyzed the one-time renewal, we can refer to the results on the (generalized) Bermudan option for which the existence of a hedging strategy was already proved. We will see that the strike price has to be adjusted if the contract is renewed in order to explicitly calculate the price of the contract.
When an insurance company sells a mutual fund with death and maturity guarantees to its client, it may consider allowing the client to extend the guarantee for some more years. If the renewal only happens once, a so-called rollover option is implied in the contract. In this paper, we show how the generalized Bermudan option can be applied to the special case of the rollover option. By avoiding the heavy mathematical tools which are necessary to prove the existence of a hedging strategy, we will focus on the calculations that are common in the Black-Scholestype analysis. Contrary to Bilodeau (1997) who analyzed the one-time renewal, we can refer to the results on the (generalized) Bermudan option for which the existence of a hedging strategy was already proved. We will see that the strike price has to be adjusted if the contract is renewed in order to explicitly calculate the price of the contract. |
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| Publisher |
Sociedade Brasileira de Econometria
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| Date |
2007-11-01
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion |
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| Format |
application/pdf
application/pdf |
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| Identifier |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1529
10.12660/bre.v27n22007.1529 |
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| Source |
Brazilian Review of Econometrics; Vol. 27 No. 2 (2007); 285-303
Brazilian Review of Econometrics; v. 27 n. 2 (2007); 285-303 1980-2447 |
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| Language |
eng
por |
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| Relation |
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1529/974
http://bibliotecadigital.fgv.br/ojs/index.php/bre/article/view/1529/975 |
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