Pricing life insurance contracts with early exercise features
نویسندگان
چکیده
In this paper we describe an algorithm based on the Least Squares Monte Carlo method to price life insurance contracts embedding American options. We focus on equity-linked contracts with surrender options and terminal guarantees on benefits payable upon death, survival and surrender. The framework allows for randomness in mortality as well as stochastic volatility and jumps in financial risk factors. We provide numerical experiments demonstrating the performance of the algorithm in the context of multiple risk factors and exercise dates.
منابع مشابه
The Uncertain Mortality Intensity Framework: Pricing and Hedging Unit-Linked Life Insurance Contracts
We study the valuation and hedging of unit-linked life insurance contracts in a setting where mortality intensity is governed by a stochastic process. We focus on model risk arising from different specifications for the mortality intensity. To do so we assume that the mortality intensity is almost surely bounded under the statistical measure. Further, we restrict the equivalent martingale measu...
متن کاملA Review on Regression-based Monte Carlo Methods for Pricing American Options
In this article we give a review of regression-based Monte Carlo methods for pricing American options. The methods require in a first step that the generally in continuous time formulated pricing problem is approximated by a problem in discrete time, i.e., the number of exercising times of the considered option is assumed to be finite. Then the problem can be formulated as an optimal stopping p...
متن کاملDesign and Pricing of Equity-Linked Life Insurance under Stochastic Interest Rates
A valuation model for equity-linked life insurance contracts incorporating stochastic interest rates is presented. Our model generalizes some previous pricing results based on deterministic interest rates. Moreover, a design of a new equity-linked product with some appealing features is proposed and compared with the periodical premium contract of Brennan and Schwartz (1976). Our new product is...
متن کاملAnalysis of Participating Life Insurance Contracts : a Unification Approach
Fair pricing of embedded options in life insurance contracts is usually conducted by using risk-neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this paper, we extend the risk-neutral valuation concept with a risk measurement approach. We accomplish this by first calibrating contract parameters that lead to...
متن کاملPricing Practices for Joint Last Survivor Insurance
In pricing joint last survivor insurance policies, standard industry practice assumes independence of mortality rates among the insured and adds on loading factors to compensate for possible under-estimations of the joint last survivor mortality due to common life style, broken heart factor or common disaster. Considering the fact that the separate mortality experiences for males and females ar...
متن کاملذخیره در منابع من
با ذخیره ی این منبع در منابع من، دسترسی به آن را برای استفاده های بعدی آسان تر کنید
عنوان ژورنال:
- J. Computational Applied Mathematics
دوره 233 شماره
صفحات -
تاریخ انتشار 2009