the cost of the option is determined as the xs (if any) of the value of the gteed annuity payments over the mat proceeds and multiplied with the option take up rate (apr 14) or the option take up rate mult only with the annuity part? (apr 13) thanks D
Hi dimitris It's the excess (if any) of the value of the guaranteed payments over the LS maturity proceeds that is multiplied by the option take-up rate. The same approach is actually adopted in the April 2013 solution too. The Examiners' Report has : The cost of the option for each scenario is any excess of the present value of the guaranteed annuity payments over the lump sum benefit multiplied by the assumed probability of exercise at that age. Hope this clarifies Lynn
thanks lynn. so it is sth like (value of gtees payments- mat proc) × take up? or value of gtees×take up -mat proc? D