Cliquet option pricing in a jump-diffusion Lévy model

DOI10.15559/18-VMSTA107MaRDI QIDQ2414852zbMATH OpenFDO

Authors Markus Hess

Publication date 17 May 2019

Published in Modern Stochastics. Theory and Applications (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1810.09670

zbMATH Keywords

cliquet option pricingcompound Poisson processdistribution functionequity indexed annuityFourier transformGreeksjump-diffusion modelLévy processpath-dependent exotic optionsensitivity analysisstochastic differential equationstructured product

Mathematics Subject Classification ID

Stationary stochastic processes (60G10) Processes with independent increments; Lévy processes (60G51) Stochastic ordinary differential equations (aspects of stochastic analysis) (60H10) Stochastic models in economics (91B70)

Abstract: We investigate the pricing of cliquet options in a jump-diffusion model. The considered option is of monthly sum cap style while the underlying stock price model is driven by a drifted L'{e}vy process entailing a Brownian diffusion component as well as compound Poisson jumps. We also derive representations for the density and distribution function of the emerging L'{e}vy process. In this setting, we infer semi-analytic expressions for the cliquet option price by two different approaches. The first one involves the probability distribution function of the driving L'{e}vy process whereas the second draws upon Fourier transform techniques. With view on sensitivity analysis and hedging purposes, we eventually deduce representations for several Greeks while putting emphasis on the Vega.

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Cites work

• A Lévy process-based framework for the fair valuation of participating life insurance contracts
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• Equity-linked annuity pricing with cliquet-style guarantees in regime-switching and stochastic volatility models with jumps
• Fair valuation of insurance contracts under Lévy process specifications
• Financial Modelling with Jump Processes
• scientific article; zbMATH DE number 1402217 (Why is no real title available?)
• Option pricing when underlying stock returns are discontinuous
• Pricing and hedging of cliquet options and locally capped contracts
• Pricing Cliquet Options in Jump-Diffusion Models

Cited in

(9)

• Cliquet option pricing with Meixner processes
• Applications of the central limit theorem for pricing cliquet-style options
• Pricing and hedging of cliquet options and locally capped contracts
• Numerical Methods and Volatility Models for Valuing Cliquet Options
• scientific article; zbMATH DE number 1836447 (Why is no real title available?)
• SIMPLE PROCESSES AND THE PRICING AND HEDGING OF CLIQUETS
• Pricing Cliquet Options in Jump-Diffusion Models
• Robust pricing of equity-indexed annuities under uncertain volatility and stochastic interest rate
• Pricing one-cliquet option under jump diffusion model with stochastic volatility and stochastic intensity

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