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Abstract and Applied Analysis
Volume 2014 (2014), Article ID 380718, 9 pages
http://dx.doi.org/10.1155/2014/380718
Research Article

Pricing of Equity Indexed Annuity under Fractional Brownian Motion Model

1School of Mathematics and Computer Science, Anhui Normal University, Wuhu, Anhui 241002, China
2School of Finance, Nanjing University of Finance and Economics, Nanjing, Jiangsu 210046, China

Received 13 December 2013; Revised 16 March 2014; Accepted 21 March 2014; Published 24 April 2014

Academic Editor: Yiming Ding

Copyright © 2014 Lin Xu et al. This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

Abstract

Fractional Brownian motion with Hurst exponent is a good candidate for modeling financial time series with long-range dependence and self-similarity. The main purpose of this paper is to address the valuation of equity indexed annuity (EIA) designs under the market driven by fractional Brownian motion. As a result, this paper presents an explicit pricing expression for point-to-point EIA design and bounds for the pricing of high-water-marked EIA design. Some numerical examples are given to illustrate the impact of the parameters involved in the pricing problems.