This paper analyses the problem of guaranteed annuity options (GAOs)attached to pensions policies issued by life insurance companies. Wedeal with the pricing and hedging for guaranteed annuity options ,which offer the policyholder the right to convert the sum assured atnormal retirement age into a life annuity at the better of the marketrate prevailing at the time of conversion and a guaranteed rate. Wederive a market value for GAO using Black model. In addition, we showhow to construct a dynamic replicating portfolio based on annualrebalancing and monthly rebalancing. The reserving principle underhedging is then discussed.
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第三屆風險管理理論研討會論文集=Proceedings of the Third Risk Management Theory Seminar，31頁
