Evaluating fair premiums of equity-linked policies with surrender option in a bivariate model

Massimo Costabile (), Marcellino Gaudenzi, Ivar Massabò and Antonino Zanette

Insurance: Mathematics and Economics, 2009, vol. 45, issue 2, 286-295

Abstract: We tackle the problem of computing fair periodical premiums of an equity-linked policy with a maturity guarantee and an embedded surrender option. We consider the policy as a Bermudan-style contingent claim that can be exercised at the premium payment dates. The evaluation framework is based on a discretization of a bivariate model that considers the joint evolution of the equity value with stochastic interest rates. To deeply reduce the computational complexity of the pricing problem we use the singular points framework that allows us to compute accurate upper and lower estimates of the policy premiums.

Keywords: IB11; IM01; IM30; Equity-linked; policies; Bivariate; model; Surrender; option (search for similar items in EconPapers)
Date: 2009
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:45:y:2009:i:2:p:286-295

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