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Regression-based algorithms for life insurance contracts with surrender guarantees

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  • Anna Rita Bacinello
  • Enrico Biffis
  • Pietro Millossovich

Abstract

We present a general framework for pricing life insurance contracts embedding a surrender option. The model allows for several sources of risk, such as uncertainty in mortality, interest rates and other financial factors. We describe and compare two numerical schemes based on the Least Squares Monte Carlo method, emphasizing underlying modeling assumptions and computational issues.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal Quantitative Finance.

Volume (Year): 10 (2010)
Issue (Month): 9 ()
Pages: 1077-1090

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Handle: RePEc:taf:quantf:v:10:y:2010:i:9:p:1077-1090

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Related research

Keywords: Insurance contracts; Surrender option; Stochastic mortality; American contingent claims; Least Squares Monte Carlo method;

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Cited by:
  1. Boyer, M. Martin & Stentoft, Lars, 2013. "If we can simulate it, we can insure it: An application to longevity risk management," Insurance: Mathematics and Economics, Elsevier, vol. 52(1), pages 35-45.
  2. Biffis, Enrico & Blake, David & Pitotti, Lorenzo & Sun, Ariel, 2011. "The cost of counterparty risk and collateralization in longevity swaps," MPRA Paper 35740, University Library of Munich, Germany.
  3. Mahayni, Antje & Schneider, Judith C., 2012. "Variable annuities and the option to seek risk: Why should you diversify?," Journal of Banking & Finance, Elsevier, vol. 36(9), pages 2417-2428.
  4. Bernard, Carole & MacKay, Anne & Muehlbeyer, Max, 2014. "Optimal surrender policy for variable annuity guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 116-128.
  5. Christian Hilpert & Jing Li & Alexander Szimayer, 2011. "The Effect of Secondary Markets on Equity-Linked Life Insurance with Surrender Guarantees," Bonn Econ Discussion Papers bgse11_2011, University of Bonn, Germany.

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