Addressing early surrender risk in EIA pricing

Investigate the valuation of equity-indexed annuities that incorporate early surrender risk, establishing pricing frameworks that do not omit the policyholder’s option to terminate the contract before maturity.

Background

The paper reviews prior literature showing that most equity-indexed annuity (EIA) pricing studies ignored the early surrender option, despite its practical relevance. In particular, Kijima and Wong (2007) emphasized that early surrender risk had been largely neglected and flagged its inclusion in pricing models as an open problem.

This work proposes a robust numerical framework under uncertain volatility and a Hull-White stochastic interest rate model, and it explicitly studies EIAs with early surrender options. The open problem concerns the development and analysis of pricing methodologies that properly model the surrender feature within EIA contracts.