On the Optimal Stopping Problem of Linear Diffusions in Regime-Switching Models

2018 ◽  
Author(s):  
Masahiko Egami ◽  
Rusudan Kevkhishvili
Keyword(s):  
Optimal Stopping ◽  
Regime Switching ◽  
Optimal Stopping Problem ◽  
Regime Switching Models ◽  
Switching Models ◽  
Linear Diffusions

scholarly journals Option Pricing and Hedging for Discrete Time Regime-Switching Models

2017 ◽  
Vol 08 (08) ◽  
pp. 1005-1032 ◽  
Author(s):  
Bruno Rémillard ◽  
Alexandre Hocquard ◽  
Hugo Lamarre ◽  
Nicolas Papageorgiou
Keyword(s):  
Option Pricing ◽  
Discrete Time ◽  
Regime Switching ◽  
Regime Switching Models ◽  
Switching Models ◽  
Time Regime

scholarly journals Optimal Surrender Policy of Guaranteed Minimum Maturity Benefits in Variable Annuities with Regime-Switching Volatility

2021 ◽  
Vol 2021 ◽  
pp. 1-20
Author(s):  
Xiankang Luo ◽  
Jie Xing
Keyword(s):  
Optimal Stopping ◽  
Mutual Fund ◽  
Regime Switching ◽  
Probabilistic Methods ◽  
Optimal Stopping Problem ◽  
American Option Pricing ◽  
Volterra Type ◽  
Variable Annuities ◽  
Type Integral ◽  
Tree Method

This study investigates valuation of guaranteed minimum maturity benefits (GMMB) in variable annuity contract in the case where the guarantees can be surrendered at any time prior to the maturity. In the event of the option being exercised early, early surrender charges will be applied. We model the underlying mutual fund dynamics under regime-switching volatility. The valuation problem can be reduced to an American option pricing problem, which is essentially an optimal stopping problem. Then, we obtain the pricing partial differential equation by a standard Markovian argument. A detailed discussion shows that the solution of the problem involves an optimal surrender boundary. The properties of the optimal surrender boundary are given. The regime-switching Volterra-type integral equation of the optimal surrender boundary is derived by probabilistic methods. Furthermore, a sensitivity analysis is performed for the optimal surrender decision. In the end, we adopt the trinomial tree method to determine the optimal strategy.

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