English, Article, Journal or magazine article edition: Equity-linked life insurance - a model with stochastic interest rates Nielsen, J. Aase; Klaus Sandmann

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Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Equity-linked life insurance - a model with stochastic interest rates
Author
  • Nielsen, J. Aase
  • Klaus Sandmann
Physical Description
  • preprint
Notes
  • Assuming constant interest rates Brennan and Schwartz (1976, 1979) obtained the rational insurance premium on an equity-linked insurance contract through the application of the theory of contingent claims pricing. Further considerations with deterministic interest rates have been discussed in Aase and Persson (1992) and in Persson (1993). Analysing the single premium case Bacinello and Ortu (1993b) allow for the short term interest rate to develop in accordance to an Ornstein-Uhlenbeck process. In a paper from 1994 they consider extensions to both the single and the periodic premium model. This paper presents a model similar to the one by Bacinello and Ortu (1994) for the periodic premium case with a stochastic interest rate dynamic. It is shown that the insurance contract includes an Asian-like option contract. Sufficient conditions on the guaranteed amount for the existence of a solution are derived. As no closed form solution will be obtained, we discuss different numerical approaches and apply Monte Carlo simulations with a variance reduction technique.
  • Asian option, forward risk adjusted measure, Monte Carlo simulations
  • RePEc:bon:bonsfb:291
Language
  • English
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