Fair Valuation of Participating Policies with Surrender Options and Regime Switching
نویسنده
چکیده
We consider the fair valuation of a participating life insurance policy with surrender options when the market values of the asset are modelled by Markov-modulated Geometric Brownian Motion (GBM). We reduce the dimension of the optimal stopping problem for the policy by changing probability measures. We also provide a decomposition result for the value of the policy. The Barone-Adesi-Whaley approximation has been employed to approximate the solution of the free boundary problem for the policy by second-order piecewise linear ordinary differential equations (ODEs). The fair valuation of participating perpetual American contracts are also considered.
منابع مشابه
Fair Valuation of Life Insurance Liabilities: The Impact of Interest Rate Guarantees, Surrender Options and Bonus Policies - Proceedings AFIR 1999 - Tokyo, Japan
The paper analyzes one of the most common life insurance products the so-called participariflg (or with pro@) policy. This type of contract stands in contrast to UnitLinked (UL) products in that interest is credited to the policy periodically according to some mechanism which smoothes past returns on the life insurance company’s (LIC) assets. As is the case for UL products, the participating po...
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