 Stochastic evaluation of life insurance contracts: Model point on asset trajectories and measurement of the error related to aggregationOberlain Nteukam T. and Frédéric Planchet () Insurance: Mathematics and Economics, 2012, vol. 51, issue 3, 624-631 Abstract: In this paper,11Version of 2012/07/08. we are interested in the optimization of computing time when using Monte-Carlo simulations for the pricing of the embedded options in life insurance contracts. We propose a very simple method which consists in grouping the trajectories of the initial process of the asset according to a quantile. The measurement of the distance between the initial process and the discretized process is realized by the L2-norm. L2 distance decreases according to the number of trajectories of the discretized process. The discretized process is then used in the valuation of the life insurance contracts. We note that a wise choice of the discretized process enables us to correctly estimate the price of a European option. Finally, the error due to the valuation of a contract in Euro using the discretized process can be reduced to less than 5%. Keywords: Life Insurance contracts; Unit-linked contracts; Embedded options; TMG guarantee; ALM; Stochastic models; Monte-Carlo simulation (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:51:y:2012:i:3:p:624-631 DOI: 10.1016/j.insmatheco.2012.09.001 Access Statistics for this article Insurance: Mathematics and Economics is currently edited by R. Kaas, Hansjoerg Albrecher, M. J. Goovaerts and E. S. W. Shiu More articles in Insurance: Mathematics and Economics from Elsevier |
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