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Return Guarantees with Delayed Payment

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  • Antje B. Mahayni
  • Klaus Sandmann

Abstract

A unit-linked insurance contract can be formulated in terms of a guaranteed amount together with a fraction of a positive excess return of a benchmark portfolio. Normally, the excess return is determined annually and accumulated until the maturity of the contract. The accumulation factor that is granted with respect to the delayed payments can either be deterministic or equal to the (stochastic) bank account. It turns out that the common choice of a deterministic accumulation factor gives rise to problems concerning the pricing and the risk management of the insurance contract. Copyright 2008 The Authors.

Suggested Citation

  • Antje B. Mahayni & Klaus Sandmann, 2008. "Return Guarantees with Delayed Payment," German Economic Review, Verein für Socialpolitik, vol. 9, pages 207-231, May.
  • Handle: RePEc:bla:germec:v:9:y:2008:i::p:207-231
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    File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1468-0475.2008.00431.x
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    References listed on IDEAS

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    1. Robert A. Jarrow, 2009. "The Term Structure of Interest Rates," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 69-96, November.
    2. Bacinello, Anna Rita & Ortu, Fulvio, 1993. "Pricing equity-linked life insurance with endogenous minimum guarantees," Insurance: Mathematics and Economics, Elsevier, vol. 12(3), pages 245-257, June.
    3. Bacinello, Anna Rita, 2001. "Fair Pricing of Life Insurance Participating Policies with a Minimum Interest Rate Guaranteed," ASTIN Bulletin: The Journal of the International Actuarial Association, Cambridge University Press, vol. 31(02), pages 275-297, November.
    4. Antje Mahayni & Erik Schlögl, 2003. "The Risk Management of Minimum Return Guarantees," Research Paper Series 102, Quantitative Finance Research Centre, University of Technology, Sydney.
    5. Antje Dudenhausen & Erik Schlögl & Lutz Schlögl, 1999. "Robustness of Gaussian Hedges and the Hedging of Fixed Income Derivatives," Research Paper Series 19, Quantitative Finance Research Centre, University of Technology, Sydney.
    6. 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;International Association for the Study of Insurance Economics (The Geneva Association), vol. 21(1), pages 65-102, June.
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