An Actuarial Approach to Reload Option Valuation for a Non-tradable Risk Assets under Jump-diffusion Process and Stochastic Interest Rate
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We use an actuarial approach to estimate the valuation of the reload option for a non-tradable risk asset under the jump-diffusion processes and Hull-White interest rate. We verify the validity of the actuarial approach to the European vanilla option for non-tradable assets. The formulas of the actuarial approach to the reload option are derived from the fair premium principle and the obtained results are arbitrage. Numerical experiments are conducted to analyze the effects of different parameters on the results of valuation as well as their differences from those obtained by the no-arbitrage approach. Finally, we give the valuations of the reload options under different parameters.
KeywordsNon-tradable assets reload option actuarial approach jump-diffusion processes stochastic interest rate
2000 MR Subject Classification91B28 60H30 60G44
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Thanks to referees for many useful comments and suggestions, which improve the paper greatly.
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