 Guarantees in With‐Profit and Unitized With‐Profit Life Insurance Contracts: Fair Valuation Problem in Presence of the Default OptionLaura Ballotta, Steven Haberman and Nan Wang Journal of Risk & Insurance, 2006, vol. 73, issue 1, 97-121 Abstract: 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. Date: 2006 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:bla:jrinsu:v:73:y:2006:i:1:p:97-121 Ordering information: This journal article can be ordered from Access Statistics for this article Journal of Risk & Insurance is currently edited by Joan T. Schmit More articles in Journal of Risk & Insurance from The American Risk and Insurance Association Contact information at EDIRC. |
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