Impact of hedging strategy on capital charges for variable annuities
Put options may reduce the cost of hedging strategies for insurers
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For insurers, the profitability of variable annuity contracts depends heavily on the hedging schemes used to mitigate their associated financial liabilities. Beyond financial performance, the inclusion of protection, such as protective put options, in hedging portfolios contributes to reducing the regulatory capital charges incurred by the insurer. In this article, Benoit Vaucher and Vivek Shah focus on quantifying how capital charges affect the total economic
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