Quantile hedging for equity-linked contracts
We consider an equity-linked contract whose payoff depends on the lifetime of the policy holder and the stock price. We provide the best strategy for an insurance company assuming limited capital for the hedging. The main idea of the proof consists in reducing the construction of such strategies for a given claim to a problem of superhedging for a modified claim, which is the solution to a static optimization problem of the Neyman-Pearson type. This modified claim is given via some sets constructed in an iterative way. Some numerical examples are also given.
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- 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.
- Melnikov Alexander & Skornyakova Victoria, 2005. "Quantile hedging and its application to life insurance," Statistics & Risk Modeling, De Gruyter, vol. 23(4/2005), pages 301-316, April.
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- Alexander Melnikov & Yuliya Romanyuk, 2006.
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Staff Working Papers
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- Alexander Melnikov & Yuliya Romanyuk, 2008. "Efficient Hedging And Pricing Of Equity-Linked Life Insurance Contracts On Several Risky Assets," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(03), pages 295-323.
- Steinar Ekern & Svein-Arne Persson, 1996. "Exotic Unit-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 35-63, June.
- Boyle, Phelim P. & Hardy, Mary R., 1997. "Reserving for maturity guarantees: Two approaches," Insurance: Mathematics and Economics, Elsevier, vol. 21(2), pages 113-127, November.
- Bacinello, Anna Rita & Ortu, Fulvio, 1993. "Pricing equity-linked life insurance with endogenous minimum guarantees : A corrigendum," Insurance: Mathematics and Economics, Elsevier, vol. 13(3), pages 303-304, December.
- Brennan, Michael J. & Schwartz, Eduardo S., 1976. "The pricing of equity-linked life insurance policies with an asset value guarantee," Journal of Financial Economics, Elsevier, vol. 3(3), pages 195-213, June.
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