| Date: Tuesday, March 19 |
Session: 25 |
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AFIR/ERM |
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Summary In this paper we deal with the problem of valuing the surrender option embedded in a participating life insurance policy with a minimum insterest 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 a la Cox, Ross and Rubinstein (1997) we compute, first of all, the total price of the contract, which includes also a "bonus" option. Then this price is split into the value of three components: the basic contract, the bonus 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 suitable fixing the cantractual parameters in order to obtain the premium computed by insurance companies according to standard actuarial practice. |
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| Ana Rita Bacinello | ||||||||||||
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| Dipartimento di Matematica Applicata alle Scienze Economiche, Statistiche ed Attuariali "Bruno de Finetti" Università degli Studi di Trieste Trieste, Italy (Full) Professor of Mathematics and Finance at the University of Trieste (Italy), Faculty of Economics (for the Graduate Courses in Economics and in Actuarial Sciences). Research Fields: Finance and Insurance (in particular, equity-linked contracts with minimum guarantees, embedded options in life insurance products and in pension schemes). Some journals in which has published papers: Insurance: Mathematics and Economics, Applied Mathematical Finance, European Journal of Operational Research, Astin Bulletin, The Journal of Risk Finance. Contributed Papers in several financial congresses and in some AFIR/ERM Colloquiums (Rome, Nurnberg, Cairns, Tromso). |
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