Fair Valuation of a Guaranteed Life Insurance Participating Contract Embedding a Surrender Option

Autor: Anna Rita Bacinello
Přispěvatelé: Bacinello, ANNA RITA
Rok vydání: 2003
Předmět:
Zdroj: Journal of Risk and Insurance. 70:461-487
ISSN: 1539-6975
0022-4367
DOI: 10.1111/1539-6975.t01-1-00060
Popis: In this article we deal with the problem of pricing a guaranteed life insurance participating policy, sold in the Italian market, which embeds a surrender option. This feature is an American-style put option that enables the policyholder to sell back the contract to the insurer at the cash surrender value. Employing a recursive binomial formula patterned after the Cox, Ross, and Rubinstein (1979) discrete option pricing model we compute, first of all, the total price of the contract, which also includes a compensation for the participation feature ("participation option," henceforth). Then this price is split into the value of three components: the basic contract, the participation option, and the surrender option. The numerical implementation of the model allows us to catch some comparative statics properties and to tackle the problem of suitably fixing the contractual parameters in order to obtain the premium computed by insurance companies according to standard actuarial practice.
Databáze: OpenAIRE
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