Modelling the Surrender Conditions in Equity-Linked Life Insurance

Anna Rita Bacinello ()
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Anna Rita Bacinello: Dipartimento di Matematica Applicata alle Scienze Economiche, Statistiche ed Attuariali, University of Trieste

No 39, CeRP Working Papers from Center for Research on Pensions and Welfare Policies, Turin (Italy)

Abstract: We propose a model for pricing a unit-linked life insurance policy embedding a surrender option. We consider both single and annual premium contracts. First we analyse a quite general contract, for which we obtain a backward recursive valuation formula based on the Cox, Ross and Rubinstein (1979) binomial model. Then we concentrate upon a particular case, that is the famous model with exogenous minimum guarantees. In this case we extend our previous analysis in order to take into account the possibility that the guarantees at death or maturity and the surrender values are endogenously determined, and provide necessary and sucient conditions for the premiums to be well defined.

Keywords: surrender option; equity-linked life insurance; exogenous and endogenous guarantees; single and annual premium contracts; binomial trees (search for similar items in EconPapers)
JEL-codes: C61 G13 G22 G23 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2005-02
New Economics Papers: this item is included in nep-fin and nep-ias
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:crp:wpaper:39

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