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Ballotta, L.; Haberman, S.; Wang, N. (2006)
Languages: English
Types: Article
Subjects: HG
The purpose of the article is to apply contingent claim theory to the valuation of the type of participating life insurance policies commonly sold in the UK. The article extends the techniques developed by Haberman, Ballotta, and Wang (2003) to allow for the default option. The default option is a feature of the design of these policies, which recognizes that the insurance company's liability is limited by the market value of the reference portfolio of assets underlying the policies that have been sold. The valuation approach is based on the classical contingent claim pricing “machinery,” underpinned by Monte Carlo techniques for the computation of fair values. The article addresses in particular the issue of a fair contract design for a complex type of participating policy and analyzes in detail the feasible set of policy design parameters that would lead to a fair contract and the trade-offs between these parameters.
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    • [1] Bacinello, A. R., 2001, Fair Pricing of Life Insurance Participating Contracts with a Minimum Interest Rate Guaranteed, Astin Bulletin, 31: 275-297.
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    • [11] Miltersen, K., R. and S. A. Persson, 1999, Pricing Rate of Return Guarantees in a Heath-Jarrow-Morton Framework, Insurance: Mathematics and Economics, 25: 307-325.
    • [12] Modigliani, F and M. H. Miller, 1958, The Cost of Capital, Corporation Finance and the Theory of Investment, American Economic Review, 48: 261-297.
    • [13] Needleman, P. D. and T. A. Roff, 1995, Asset Shares and their Use in the Financial Management of a With-Profits Fund, British Actuarial Journal, 1: 603-688.
    • [14] Persson, S. A. and K. K. Aase, 1997, Valuation of the Minimum Guaranteed Return Embedded in Life Insurance Products, Journal of Risk and Insurance, 64: 599-617.
    • [15] Tillinghast-Towers Perrin, 2001, Asset Share Survey 2000. London.
    • [16] Wirch, J. L. and M. R. Hardy, 1999, A Synthesis of Risk Measures for Capital Adequacy, Insurance: Mathematics and Economics, 25: 337- 347.
  • No related research data.
  • Discovered through pilot similarity algorithms. Send us your feedback.

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