Floor options on structured products and life insurance contracts

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

Abstract

We consider an exotic call option defined on structured products and on two types of life insurance contracts: pure endowment insurance and risk insurance contracts. Upon exercise, these option contracts promise the higher of either the future value of the invested fund in risk-free interest rate, which is defined in the option contract or the future value of the fund invested in a basket of risky assets. The randomness of interest rate is modulated by two stochastic processes: Ornstein-Uhlenbeck (OU) process and the Vasicek process. In each case considered, an explicit expression of the value of the options as well as numerical examples are provided.

Original languageEnglish
Pages (from-to)160-170
Number of pages11
JournalInvestment Management and Financial Innovations
Volume3
Issue number3
StatePublished - 1 Jan 2006

Keywords

  • American call option
  • European call option
  • Floor option
  • Ornstein-Uhlenbeck process
  • Pure endowment insurance
  • Risk insurance
  • Vasicek process

ASJC Scopus subject areas

  • Business and International Management
  • Accounting
  • Finance
  • Economics and Econometrics
  • Strategy and Management

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