Impacts of Jumps and Stochastic Interest Rates on the Fair Costs of Guaranteed Minimum Death Benefit Contracts

The authors offer a new perspective to the domain of guaranteed minimum death benefit contracts. These products have the particular feature to offer investors a guaranteed capital upon death. A complete methodology based on the generalized Fourier transform is proposed to investigate the impacts of jumps and stochastic interest rates. This paper thus extends Milevsky and Posner (2001). In contrast to their results, the fair costs of the guarantee feature are found to be substantially higher in this more general economy