Just published, “Valuation of no-negative-equity guarantees with a lower reflecting barrier” by our friend Guy Thomas (University of Kent at Canterbury).
Without comment for now, but I have checked through the mathematics, which I cannot fault, and I have replicated both Guys’ valuation formula (equation 2) and his hedge ratio (equation A.12 in Appendix C), which I have reconciled by simulation. There is nothing to fault in the mathematics, as far as I can see.
The bottom line is that Guy’s model values the embedded NNEG guarantee somewhat cheaper than the standard Black 76 pricing model used by the PRA in their benchmark. Whether it is consistent with rational pricing principles (or indeed PRA pricing principles) is another matter which I may take up later.