Moment-matching approximations for stochastic sums in non-Gaussian Ornstein-Uhlenbeck models

Riccardo Brignone, Ioannis Kyriakou, Gianluca FUSAI

Research output: Contribution to journalArticlepeer-review

Abstract

In this paper, we recall actuarial and financial applications of sums of dependent random variables that follow a non-Gaussian mean-reverting process and contemplate distribution approximations. Our work complements previous related studies restricted to lognormal random variables; we revisit previous approximations and suggest new ones. We then derive moment-based distribution approximations for random sums attuned to Asian option pricing and computation of risk measures of random annuities. Various numerical experiments highlight the speed–accuracy benefits of the proposed methods.
Original languageEnglish
Pages (from-to)232-247
Number of pages16
JournalINSURANCE MATHEMATICS & ECONOMICS
Volume96
DOIs
Publication statusPublished - 2021

Keywords

  • Asian option valuation
  • Mean reversion
  • Moment-matching
  • Non-Gaussian processes
  • Stochastic annuities

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