Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/86055
Authors: 
Pelsser, Antoon
Year of Publication: 
2002
Series/Report no.: 
Tinbergen Institute Discussion Paper 02-037/2
Abstract: 
In this paper we derive a market value for Guaranteed Annuity Optionusing martingale modeling techniques. Furthermore, we show how to construct a static replicating portfolio of vanillainterest rate swaptions that replicates the Guaranteed Annuity Option. Finally, we illustrate with historical UK interest rate data from the period1980 until 2000 that the static replicating portfolio is extremely effective asa hedge against the interest rate risk involved in the GAO, that thestatic replicating portfolio is considerably cheaper than up-front reservingand also that the replicating portfolio provides a much better level ofprotection than an up-front reserve.
JEL: 
G13
G22
Document Type: 
Working Paper

Files in This Item:
File
Size
117.42 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.