We deal with several efficient discretization methods for the simulation of the Heston stochastic volatility model. The resulting schemes can be used to calculate all kind of options and corresponding sensitivities, in particular the exotic options that cannot be valued with closed-form...

Life insurance products have profit sharing features in combination with guarantees. These so-called embedded options are often dependent on or approximated by forward swap rates. In practice, these kinds of options are mostly valued by Monte Carlo simulations. However, for risk management...

Guaranteed annuity options are options providing the right to convert a policyholder's accumulated funds to a life annuity at a fixed rate when the policy matures. These options were a common feature in UK retirement savings contracts issued in the 1970's and 1980's when interest rates were...

This article presents a novel approach for calculating swap vega per bucket in the Libor BGM model. We show that for some forms of the volatility an approach based on re-calibration may lead to a large uncertainty in estimated swap vega, as the instantaneous volatility structure may be distorted...

In this paper we derive a market value for Guaranteed Annuity Option using martingale modeling techniques. Furthermore, we show how to construct a static replicating portfolio of vanilla interest rate swaptions that replicates the Guaranteed Annuity Option. Finally, we illustrate with historical...

The valuation of insurance contracts using a market value approach, also known as the fair value approach has recently attracted a lot of interest. Seconding this trend, we would like to illustrate in this paper how we can determine the market value of a with-profits insurance policy. The method...

A broad class of exotic interest rate derivatives can be valued simply by adjusting the forward interest rate. This adjustment is known in the market as convexity correction. Various ad hoc rules are used to calculate the convexity correction for different products, many of them mutually...

The first three factors resulting from a principal components analysis of term structure data are in the literature typically interpreted as driving the level, slope and curvature of the term structure. Using slight generalisations of theorems from total positivity, we present sufficient...

We compare single factor Markov-functional and multi factor market models for hedging performance of Bermudan swaptions. We show that hedging performance of both models is comparable, thereby supporting the claim that Bermudan swaptions can be adequately risk-managed with single factor models....