Applications of the central limit theorem for pricing Cliquet-style options

Korn R., Temocin B. Z., Wenzel J.

EUROPEAN ACTUARIAL JOURNAL, vol.7, no.2, pp.465-480, 2017 (ESCI, Scopus) identifier identifier

  • Publication Type: Article / Article
  • Volume: 7 Issue: 2
  • Publication Date: 2017
  • Doi Number: 10.1007/s13385-017-0158-y
  • Journal Name: EUROPEAN ACTUARIAL JOURNAL
  • Journal Indexes: Emerging Sources Citation Index (ESCI), Scopus
  • Page Numbers: pp.465-480
  • Middle East Technical University Affiliated: No

Abstract

Cliquet-style options in different variants are basic building blocks in select products which are offered by German life insurance companies. We present both an analytical pricing approximation via the central limit theorem and a corresponding control variate Monte Carlo approach for their valuation. The control variate approach turns out to be a good alternative to the integral representation of Bernard and Li (SIAM J Financ Math, 4: 353-371, 2013). Further, it can be modified to increase the efficiency of pricing cliquet-style options in the Heston price setting.