On the optimal design of insurance contracts with guarantees
The paper analyzes insurance contracts where the benefits of the insured depend on the performance of an investment strategy and which guarantee a certain interest rate on the contributions made by the insured. The insured has to decide simultaneously on the investment strategy and the guarantee scheme. For a CRRA insured and in a BS economy, the optimal combination is given by a constant mix strategy and the contribution guarantee scheme. In case the insured has a subsistence level, the CPPI strategy turns out to be optimal for arbitrary schemes. We illustrate our results by numerical examples and analyze the utility losses of a CRRA insured due to the use of a suboptimal combination of investment strategy and guarantee scheme.
Year of publication: |
2010
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Authors: | Branger, Nicole ; Mahayni, Antje ; Schneider, Judith C. |
Published in: |
Insurance: Mathematics and Economics. - Elsevier, ISSN 0167-6687. - Vol. 46.2010, 3, p. 485-492
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Publisher: |
Elsevier |
Keywords: | Interest rate guarantee Optimal portfolio choice Utility loss Guarantee scheme CPPI |
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