An investigation into the use of the Black-Scholes model for pricing long term options, for the purpose of costing maturity guarantees

This thesis investigates the use of the Black-Scholes option pricing model for long term options for the purposes of costing long term maturity guarantees. The maturity guarantees concerned are typically given on endowment policies issued by life offices. These endowment policies have terms usually in excess of five years. The thesis investigates whether the assumptions underlying the Black-Scholes model, which was developed for pricing short term traded options, are still acceptable when applied to long term options, and if not, what adjustments need to be made. The paper focuses on the pricing of European put options which are equivalent to the payoff of a maturity guarantee.

Grantor dc:publisher.institution

Division of Actuarial Science

Year dc:date.issued

1995

Author dc:creator

• Gamerov, Steven

Advisor dc:contributor.advisor

• Dorrington, Rob

Language dc:language.iso

eng

Handle dc:identifier.uri

http://hdl.handle.net/11427/17475

OAI identifier oai:identifier

oai:open.uct.ac.za:11427/17475