Construct a replicating portfolio for the options in 7(b) using delta-hedging.
Free SOA Exam ALTAM (Advanced Long-Term Actuarial Mathematics) lesson in Embedded Options in Life Insurance and Annuity Products. 14 min read, ~2,074 words.
GMMB payoff: per surviving policyholder. It is a European put on the separate-account fund with strike. Put delta:, always between and. Replicating portfolio for a long put: short shares of the fund plus lend in cash. Total cost equals the Black-Scholes put price. Mortality scaling: multiply both the share count...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- 7c
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