The Department of Finance and Risk Engineering welcomes Laura Ballotta, Reader in Financial Mathematics at Cass Business School to the BQE Lecture Series.
Fourier-based methods for the management of complex insurance products
This paper proposes a framework for the valuation and the management of complex life insurance contracts, whose design can be described by a portfolio of embedded options, which are activated according to one or more triggering events. These events are in general monitored discretely over the life of the policy, due to the contract terms. Similar designs can also be found in other contexts, such as counterparty credit risk for example.
The framework is based on Fourier transform methods as they allow to derive convenient closed analytical formulas for a broad spectrum of underlying dynamics. Multidimensionality issues generated by the discrete monitoring of the triggering events are dealt with efficiently designed Monte Carlo integration strategies. We illustrate the tractability of the proposed approach by means of a detailed study of ratchet variable annuities, which can be considered a prototypical example of these complex structured products.
This is joint work with Ernst Eberlein, Thorsten Schmidt and Raghid Zeineddine.
Laura Ballotta is a reader in Financial Mathematics at Cass Business School, London. She works in the areas of quantitative finance and risk management and has written on topics including stochastic modelling for financial valuation and risk management, numerical methods aimed at supporting financial applications, and the interplay between finance and insurance. She holds a Ph.D. in Mathematical and Computational Methods for Economics and Finance from the Università degli Studi di Bergamo (Italy).