An Actuarial Approach to Reload Option Valuation for a Non-tradable Risk Assets under Jump-diffusion Process and Stochastic Interest Rate
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
Unable to display preview. Download preview PDF.
Thanks to referees for many useful comments and suggestions, which improve the paper greatly.
- Jin, Z.M. The Basics of Financial Mathematics. Science Press, Beijing, 2006Google Scholar
- Shreve, S. Stochastic calculus for finance II, Springer, New York, 2005Google Scholar
- Su, J., XU, G.J., Yang, X.N. Contingent claims value when the underlying asset price is a jump-diffusion process under stochastic interest rate. Mathematics in Practice and Theory, 40(18): 30–35 (2010)Google Scholar
- Wang, X.D., Du, X.J. Pricing the compound options under jump-diffusion model. Mathematics in Practice and Theory, 39(14): 5–11 (2009)Google Scholar