December 2013
Intermediate to advanced
484 pages
14h 54m
English
Content preview from Nonlinear Option Pricing
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212 The Uncertain Lapse and Mortality Model
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avel
lapse max
lapse min
Figure 8.7: Price of the GMxB with cliqueting strikes using (a) the optimal
lapse rate (“avel”), (b) only the maximum lapse rate, and (c) only the min-
imum lapse rate. Curves (a) and (c) almost coincide. Curve (a) is slightly
above Curve (c) around the money. The minimum lapse rate is flat at 2%,
except for year 1 (0%) and year 2 (0.5%). The maximum lapse rate equals
the minimum lapse rate plus 15%. The minimum mortality rate increases lin-
early over [0, T ], from 0.5% to 1%. The maximum mortality rate ...
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