Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts
AbstractAn equity-linked life insurance contract combines an endowment life insurance and an investment strategy with a minimum guarantee. The benefit of this contract is determined by the guaranteed amount plus a bonus equal to a call on the portfolio. This bonus is similar to an Asian option. We analyze the relationship between the periodic insurance premium and its proportional share invested into the portfolio. For a general model of the financial risks we show the existence and uniqueness of an insurance premium. Furthermore the premium is strictly increasing and convex as a function of the share invested. An earlier version of this paper was presented under the title Security Linked Life Policies under Stochastic Interest Rates .
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Discussion Paper Serie B with number 327.
Date of creation: Sep 1995
Date of revision: Mar 1996
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Postal: Bonn Graduate School of Economics, University of Bonn, Adenauerallee 24 - 26, 53113 Bonn, Germany
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Web page: http://www.bgse.uni-bonn.de/index.php?id=517
Asian option; forward risk adjusted measure; Monte Carlo simulations; life insurance; stochastic interest rates;
Other versions of this item:
- J. Aase Nielsen & Klaus Sandmann, 1996. "Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 21(1), pages 65-102, June.
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
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