COVID-19, insurer board utility, and capital regulation

Xuelian Li, Panpan Lin and Jyh-Horng Lin

Finance Research Letters, 2020, vol. 36, issue C

Abstract: This paper develops a down-and-out call option model by introducing a structural break in volatility to capture the coronavirus (COVID-19) outbreak. The life insurer's equity and its board's utility are evaluated at the optimal guaranteed rate in the equity maximization. Results suggest that the seriousness degree of the COVID-19 outbreak and capital regulation enhance the optimal guaranteed rate and the board's utility. Increased the board's utility by increasing liabilities costs insurer profitability. Conflicts of incentives can arise during the COVID-19 outbreak.

Keywords: Optimal guaranteed rate; Board utility; COVID-19; Capital regulation (search for similar items in EconPapers)
JEL-codes: G13 G22 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (7)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:36:y:2020:i:c:s1544612320305560

DOI: 10.1016/j.frl.2020.101659

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