Open AccessAnalysis of a penalty method for pricing a guaranteed minimum withdrawal benefit (GMWB)
Author(s) -
Yu Huang,
Peter Forsyth
Publication year - 2011
Publication title -
ima journal of numerical analysis
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.672
H-Index - 66
eISSN - 1464-3642
pISSN - 0272-4979
DOI - 10.1093/imanum/drq044
Subject(s) - mathematics , mathematical optimization , penalty method , mathematical economics
The no-arbitrage pricing of guaranteed minimum withdrawal benefits contracts results in a singular stochastic control problem that can be formulated as a Hamilton–Jacobi–Bellman (HJB) variational inequality (VI). Recently, a penalty method has been suggested for solution of this HJB VI (Dai et al. (2008), Math. Finance, 18, 595–611). This method is very simple to implement. In this article we pres...
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