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Bandgeek050
09-15-2010, 08:36 PM
Anyone else working on Task 1? I feel like I know what I'm supposed to do, but I don't think that I'm doing it 100% correctly (or efficiently).

Bandgeek050
09-16-2010, 06:24 PM
Does anyone have the PV of the first LN scenario's hedge errors?

weschew
09-17-2010, 12:05 PM
I have got -12.2157 for the 1st LN hedging errors, i saw some post where ppl get -14.0, i got that too if i did not include the hedging error for the final month, but i dun understand why bcoz the GMMB is in the money at end of 24th month.

Bandgeek050
09-17-2010, 12:50 PM
Grrr...I'm not getting that.

I have the cost of the hedge for duration 0 is \$67.75
(F0 = 997.5, MC = 2.5,...)
for duration 1, I have Ft the hedge cost as 114.11.
(F1 = 887.2062, MC 2.22, d1(t) = -.11517, d2(t) = -.36436, etc)

Do you match that at all?

Edit: Just to check, my random numbers for the first LN scenario are:
0.891658921
1.005789956
0.967175552
1.042447288
0.983360974
0.985493107
1.04958821
0.973340192
0.997393857
0.967277367
1.023339357
1.007136993
0.94938823
1.021863741
0.985344089
0.984837071
1.064821839
1.009096166
1.024724547
0.984410152
0.938950406
0.944443618
0.98775723
1.075980004

life_interrupted
09-17-2010, 01:52 PM
I have got -12.2157 for the 1st LN hedging errors, i saw some post where ppl get -14.0, i got that too if i did not include the hedging error for the final month, but i dun understand why bcoz the GMMB is in the money at end of 24th month.

Did you remember to sell the existing hedge without buying a new one at the end? I believe that by doing this, you offset the cost of the GMMB being in the money.

life_interrupted
09-17-2010, 01:55 PM
Grrr...I'm not getting that.

I have the cost of the hedge for duration 0 is \$67.75
(F0 = 997.5, MC = 2.5,...)
for duration 1, I have Ft the hedge cost as 114.11.
(F1 = 887.2062, MC 2.22, d1(t) = -.11517, d2(t) = -.36436, etc)

Do you match that at all?

Edit: Just to check, my random numbers for the first LN scenario are:
0.891658921
1.005789956
0.967175552
1.042447288
0.983360974
0.985493107
1.04958821
0.973340192
0.997393857
0.967277367
1.023339357
1.007136993
0.94938823
1.021863741
0.985344089
0.984837071
1.064821839
1.009096166
1.024724547
0.984410152
0.938950406
0.944443618
0.98775723
1.075980004

From what I can see here, I think you should be on the right track. Your numbers are in agreement with mine. Perhaps you need to check what you are doing at the end of the GMMB period.

Bandgeek050
09-17-2010, 04:45 PM
I feel like an idiot. I was using the wrong interest rate. (I think. I now get -14.00)

weschew, my Hedge cost at duration 24 is 193.87 and my hedge brought forward from duration 23 was also 193.87 so my Hedge Error in 24 is zero and so excluding it or including doesn't change the -\$14.

Bandgeek050
09-17-2010, 05:19 PM
Running my 50 scenarios

RSLN:
Average 2.282972068
stdev 26.73865402

LN:
Average -2.418212629
stdev 16.56477917

Anyone else?