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Valuing Surrender Options in Korean Interest Indexed Annuities

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  • Kim Changki

    (University of New South Wales, Australia)

Abstract

We present surrender rate models with explanatory variables such as the difference between reference rates and crediting rates, policy age since issue, unemployment rates, and economy growth rates, using a logit model. We calculate the values of the surrender options in Korean interest-indexed annuities. It is interesting to note that the values of the surrender options subject to a surrender charge show negative values despite the fact that the surrender options are the right given to policyholders. We then attempt to find the fair surrender charges for the insurance company and its policyholders.

Suggested Citation

  • Kim Changki, 2009. "Valuing Surrender Options in Korean Interest Indexed Annuities," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(2), pages 1-22, April.
  • Handle: RePEc:bpj:apjrin:v:3:y:2009:i:2:n:4
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    References listed on IDEAS

    as
    1. Anna Rita Bacinello, 2003. "Fair Valuation of a Guaranteed Life Insurance Participating Contract Embedding a Surrender Option," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(3), pages 461-487.
    2. Ho, Thomas S Y & Lee, Sang-bin, 1986. " Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-1029, December.
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