Variable annuities are investment vehicles offered by insurance companies that combine a life insurance policy with long-term financial guarantees. These guarantees expose the insurer to market risks, such as volatility and interest rate risks, which can only be managed with a hedging strategy....

Although the finance literature has devoted a lot of research into the development of advanced models for improving the pricing and hedging performance, there has been much less emphasis on approaches to measure dynamic hedging effectiveness. This article discusses a statistical framework based...

We develop a flexible discrete-time hedging methodology that miminizes the expected value of any desired penalty function of the hedging error within a general regime-switching framework. A numerical algorithm based on backward recursion allows for the sequential construction of an optimal...

This paper develops a dynamic risk management model to determine a firm's optimal risk management strategy. This strategy has two elements: First, for low leverage values, the firm fully hedges its operating cash flow exposure, due to the convexity of its cost of capital. When leverage exceeds a...

We develop a flexible discrete-time hedging methodology that minimizes the expected value of any desired penalty function of the hedging error within a general regime-switching framework. A numerical algorithm based on backward recursion allows for the sequential construction of an optimal...