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|Title: ||Valuation of Guarantees Set Relative to Cross-Currency Stochastic
Rates of Return|
|Authors: ||Tsung-Yu Hsieh, Chi-Hsun Chou,Son-Nan Chen|
|Contributors: ||Department of Banking and Finance, Tamkang University,Department of Management, Fo Guang University,Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University|
|Keywords: ||Stochastic, Rate of Return Guarantee, Cross-currency, Interest rate, LIBOR
|Issue Date: ||2013-08-07 09:27:33 (UTC+8)|
|Publisher: ||Department of Banking and Finance, Tamkang University,Department of Management, Fo Guang University,Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University|
|Abstract: ||We derive the pricing formulas for guarantees whose guaranteed minimum rates of|
return are set relative to cross-currency stochastic rates of return, “GCSRs” for short, via a
cross-currency framework. GCSRs are often embedded in contracts which include life and
pension insurance policies, guaranteed investment contracts and index-linked bonds, etc.
The valuation of such guarantees has not been investigated in previous literature regarding
guarantees. Our research finds that valuing GCSRs via a single-currency framework
which is adopted in previous research on guarantees causes a significant underestimation
of GCSRs under both maturity and multi-period guarantee. The underestimation of
multi-period guarantee is much more significant than that of maturity guarantee. As a
result, the pricing formulas derived in our research are more suitable, tractable and
feasible for practice than those in previous relevant literature.
|Relation: ||2012中部學術財金研討會 論文發表|
|Appears in Collections:||[財務金融學系] 會議論文|
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