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Pricing and Hedging Extreme Maturity Contracts

Funding: 2008: $100,000
2009: $100,000
2010: $100,000
2011: $40,000

Project Member(s): Platen, E., Schlogl, E.

Funding or Partner Organisation: Australian Research Council (ARC Discovery Projects)

Start year: 2008

Summary: Great changes in the way Australians save, invest, and manage the risks of their retirement life style can be expected. The accurate evaluation and hedging of superannuation products, with extreme maturities reaching several decades, remains a central challenge. Platen s benchmark approach addresses a fundamental empirical inconsistency of modern finance with severe consequences for extreme maturity contracts. The project will extend this new theory and demonstrate that many superannuation products should be less expensive than currently suggested. It will develop innovative, readily applicable quantitative methods for the accurate calibration, pricing and hedging of extreme maturity derivatives for various market sectors.

Keywords: extreme maturity contracts, superannuation, benchmark approach, capital guaranteed investment, growth optimal portfolio, derivative pricing and hedging,

FOR Codes: Finance and investment services, Ageing and Older People, Finance, Financial Mathematics, Finance Services