Fourier-Cosine Method for Pricing Equity-Indexed Annuity under Heston Model

In this paper, a pricing method based on the Fourier-Cosine series expansion is introduced for equity-indexed annuities (EIAs) under Heston model. By means of expansion, density function underlying indexed recovered from its characteristic function, and then yields an efficient way EIAs pricing. To show accuracy method, numerical experiments, we provide results price classical Black-Scholes It shown that computation obtained by Foueier-Cosine are as accurate those using Monte Carlo simulation method. The can be used to obtain break-even participation rate model with or without cap in simple ratchet EIAs.