Pricing Dynamic Guaranteed Funds Under a Double Exponential Jump Diffusion Model

47 Pages Posted: 25 Aug 2009

See all articles by Chuang-Chang Chang

Chuang-Chang Chang

National Central University at Taiwan - Department of Finance

Ya-Huei Lian

National Central University at Taiwan - Department of Finance

Min-Hung Tsay

National Central University at Taiwan - Department of Finance

Date Written: July 3, 2009

Abstract

This paper complements the extant literature to evaluate the prices of dynamic guaranteed funds when the price of underlying naked fund follows a double exponential jump-diffusion process. We first derive the closed-form solution for the Laplace transform of dynamic guaranteed fund price, and then apply the efficient Gaver-Stehfest algorithm of Laplace inversion to obtain the prices of dynamic guaranteed funds. Based on the numerical pricing results, we find that the proposed pricing method is much more efficient than the Monte Carlo simulation approach without losing any accuracy. On the other hand, we also provide an investigation on the behavior of prices of dynamic guaranteed funds when jump is taken into consideration. In addition, the sensitivity analyses of the prices of dynamic guaranteed funds with respect to jump-related parameters are also given in this paper.

Suggested Citation

Chang, Chuang-Chang and Lian, Ya-Huei and Tsay, Min-Hung, Pricing Dynamic Guaranteed Funds Under a Double Exponential Jump Diffusion Model (July 3, 2009). 22nd Australasian Finance and Banking Conference 2009. Available at SSRN: https://ssrn.com/abstract=1461238 or http://dx.doi.org/10.2139/ssrn.1461238

Chuang-Chang Chang

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan
886-3-4227151 ext. 6159 (Phone)
886-3-4252961 (Fax)

Ya-Huei Lian

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

Min-Hung Tsay (Contact Author)

National Central University at Taiwan - Department of Finance ( email )

No. 300, Jhongda Rd, Jhogli City, Taoyuan, Taiwan,
Jhongli, TY 32001
Taiwan

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