Fair Valuation of Participating Policies with Surrender Options and Regime Switching

نویسنده

  • Tak Kuen Siu
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.

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

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...

متن کامل

Early Default Risk and Surrender Risk: Impacts on Participating Life Insurance Policies

We study the fair valuation of participating life insurance policies with surrender guarantees when an early default mechanism is imposed by a regulator. An insurance company is forced to be liquidated once a solvency threshold is reached before maturity. The early default regulation affects the contracts’ value not only directly via changing the contracts’ payment streams but also indirectly v...

متن کامل

Fair Valuation of the Surrender Option Embedded in a Guaranteed Life Insurance Participating Policy

In this paper we deal with the problem of valuing the surrender option embedded in a participating life insurance policy with a minimum interest rate guaranteed. This feature is an American-style put option that enables the policyholder to sell back the contract to the insurer at the surrender value. By means of a recursive binomial tree à la Cox, Ross and Rubinstein (1979) we compute, first of...

متن کامل

The effect of policyholders' rationality on unit-linked life insurance contracts with surrender guarantees

We study the valuation of unit-linked life insurance contracts with surrender guarantees. Instead of solving an optimal stopping problem, we propose a more realistic approach accounting for policyholders’ rationality in exercising their surrender option. The valuation is conducted at the portfolio level by assuming the surrender intensity to be bounded from below and from above. The lower bound...

متن کامل

Market based tools for managing the life insurance company

In this paper we present an approach to market based valuation of life insurance policies, in the spirit of the NUMAT proposed by Hans Bühlmann (2002) in an editorial in the ASTIN Bulletin. We have experienced the valuation method for more than one decade, both as a pricing procedure applied to policy portfolios of leading insurance companies, and by including the valuation principles into seve...

متن کامل

ذخیره در منابع من


  با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید

برای دانلود متن کامل این مقاله و بیش از 32 میلیون مقاله دیگر ابتدا ثبت نام کنید

ثبت نام

اگر عضو سایت هستید لطفا وارد حساب کاربری خود شوید

عنوان ژورنال:

دوره   شماره 

صفحات  -

تاریخ انتشار 2005