Pricing Equity-Linked Life Insurance Contracts with Minimum Interest Rate Guarantee in Partial Equilibrium Framework

This paper examines the pricing of equity-linked life insurance including a minimuminterest rate guarantee in a partial equilibrium framework. The models for calculatingdefault option values and default probability are established. Those models integratesupply and demand considerations, stochastic interest rates, stochastic investmentreturn, and mortality rates. The term structure of interest rates is based on the Cox,Ingersoll, Ross (1985) model...

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Authors:	Mao, Hong ; Ostaszewski, Krzysztof M.
Subject:	Aktie \| Kapitalwert \| Lebensversicherung \| Mindestrendite \| Minimum return guarantee \| Ausfallwahrscheinlichkeit

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1 Introduction
2 Pricing and Measurement Models of Default Risk
2.1 Assumptions Underlying the Measurement Models
2.2 Pricing Model of Default Option Value
2.3 Measurement of Default Probability
3 Optimization of Default Optimization of Default Boundary and Price of Insurance Contract
3.1 Objective Function
3.2. Monte Carlo simulation and optimization
3.3. Convergence of default put option values and default probabilities
4 Discussions and Analysis
4.1. Discussions on the influence of values of minimum guaranteed return rate on risks and benefits of insurers and the insured
4.2. Analysis of effect on when parameters of CON change
5 Conclusions

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