Before revision: This paperpresents a novel framework for valuation and hedging of the insurer's net liability on a Guaranteed Minimum Maturity Benefit (GMMB) embedded in variable annuity (VA) contracts whose underlying mutual fund dynamics evolve under the influence of the regime-switching model. Numerical solutions for valuations and Greeks (i.e. valuation sensitivities with respect to model parameters) of GMMB under stochastic mortality are derived. Valuation and hedging is performed using an accurate , fast and efficient Fourier Space Time-stepping (FST) algorithm.
After revision: This paperpresents a novel framework for valuation and hedging of the insurer's net liability on a Guaranteed Minimum Maturity Benefit (GMMB) embedded in variable annuity (VA) contracts . Numeric solutions for net liabilities, fair rate of fees and Greeks of GMMB are obtained by a more accurate and fast Fourier Space time-stepping (FST) algorithm.