Return Guarantees with Delayed Payment

Mahayni Antje B. and Klaus Sandmann
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Mahayni Antje B.: University of Duisburg-Essen,Duisburg, Germany

German Economic Review, 2008, vol. 9, issue 2, 207-231

Abstract: A unit-linked insurance contract can be formulated in terms of a guaranteed amount together with a fraction of a positive excess return of a benchmark portfolio. Normally, the excess return is determined annually and accumulated until the maturity of the contract. The accumulation factor that is granted with respect to the delayed payments can either be deterministic or equal to the (stochastic) bank account. It turns out that the common choice of a deterministic accumulation factor gives rise to problems concerning the pricing and the risk management of the insurance contract.

Keywords: Conservative pricing; defined-contribution pension plans; delayed payment option; fair contract; life insurance; model misspecification; model risk; periodic return guarantee; robust hedging; uncertain volatility (search for similar items in EconPapers)
Date: 2008
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DOI: 10.1111/j.1468-0475.2008.00431.x

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