Pricing maturity guarantee under a refracted Brownian motion (Q384225)

The paper deals with pricing equity linked investment products under the regime that the cost of guaranteed minimum maturity benefit is deducted whenever the price of funds declines under a certain level (predetermined threshold). From the point of view of policyholders it is a special type of embedded options which can improve the profitability of the investment. In the corresponding model one assumes that the fund price follows a geometric refracted Brownian motion where the drifts are state dependent. It enables to derive corresponding integral formulas both for the prices of fund and for the minimum maturity guarantee. Some numerical examples are given delivering numerical results.