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On Pricing Equity-Linked Investment Products with a Threshold Expense Structure

Bae, Tae-Han;Ko, Bang-Won

  • Received : 20100400
  • Accepted : 20100400
  • Published : 2010.08.31

Abstract

This paper considers a certain expense structure where a vendor of equity-linked investment product will collect its expenses continuously from the investor's account whenever the investment performance exceeds a certain threshold level. Under the Black-Scholes framework, we derive compact convolution formulas for evaluating the total expenses to be collected during the investment period by using the joint Laplace transform of the Brownian motion and its excursion time. We provide numerical examples for illustration.

Keywords

Threshold expense structure;joint Laplace transform;Brownian motion;excursion time

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  1. Risk Management of Policyholder Behavior in Equity-Linked Life Insurance vol.84, pp.2, 2017, https://doi.org/10.1111/jori.12094
  2. Pricing maturity guarantee under a refracted Brownian motion vol.34, pp.3, 2013, https://doi.org/10.1134/S1995080213030025