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Pricing a Chained Dynamic Fund Protection Under Vasicek Interest Rate Model with Stochastic Barrier

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Abstract

Dynamic fund protection provides a guarantee that the account value of the investor never drops below a barrier over the investment period. In order to reduce the downside risk taken by vendors, Han, et al. (2016) proposed a chained dynamic fund protection (CDFP), whose protection is activated only if the value of basic fund reaches a predefined upper protection line. Motivated by them, we consider a new CDFP plan under a stochastic interest rate environment. The explicit pricing formula for a CDFP is obtained when the protection lines are proportional to a zero-coupon bond. Furthermore, the authors present some numerical results for the value of CDFP at time 0 to show how the model parameters impact the value of CDFP.

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Authors and Affiliations

  1. Department of Mathematics and Physics, Suzhou University of Science and Technology, Suzhou, 215009, China

    Yinghui Dong, Chao Xu & Sang Wu

Authors
  1. Yinghui Dong
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  2. Chao Xu
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  3. Sang Wu
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Corresponding author

Correspondence to Yinghui Dong.

Additional information

This research was supported by the NSF of Jiangsu Province under Grant No. BK20170064, the NNSF of China under Grant No. 11771320, QingLan Project of Jiangsu Province, the scholarship of Jiangsu Overseas Visiting Scholar Program and the Graduate Innovation Program of USTS (SKCX18-Y06).

This paper was recommended for publication by Editor WANG Shouyang.

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Dong, Y., Xu, C. & Wu, S. Pricing a Chained Dynamic Fund Protection Under Vasicek Interest Rate Model with Stochastic Barrier. J Syst Sci Complex 32, 1659–1674 (2019). https://doi.org/10.1007/s11424-019-7400-4

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  • DOI: https://doi.org/10.1007/s11424-019-7400-4

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