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Development of binomial pricing model of shares and bonds for a life insurance company

Author

Listed:
  • Dyba Victoria

    (National Technical University of Ukraine «Igor Sikorsky Kyiv Polytechnic Institute»)

  • Kapustian Volodymir

    (National Technical University of Ukraine «Igor Sikorsky Kyiv Polytechnic Institute»)

Abstract

The process of share price formation is studied in the article as well as a random process, and a model is developed that describes a random process that has characteristics close to the Brownian bridge, and realizes a multiplicative model of the bond price evolution with outpaced repayment time and normal value. The definition of a random process of forming a share price through a geometric Brownian bridge is also given. Since the Ukrainian insurance market is at the initial stage of development, and the country's economy is unstable, insurance companies need practical and reliable tools for calculating and forecasting the expected return on investment activity. And especially urgent for this particular type of activity is the issue of breakeven investment, as insurance companies can’t afford risky investment because of the specifics of their activities. As a research result, the level of investing in a risk-free asset for an insurance company of a cumulative type is calculated.

Suggested Citation

  • Dyba Victoria & Kapustian Volodymir, 2017. "Development of binomial pricing model of shares and bonds for a life insurance company," Technology audit and production reserves, 5(37) 2017, Socionet;Technology audit and production reserves, vol. 5(4(37)), pages 45-51.
    • Handle: RePEc:nos:itrzhq:8
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    File URL: http://journals.uran.ua/tarp/article/view/113280
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    References listed on IDEAS

    as
    1. Kao, Chiang & Hwang, Shiuh-Nan, 2008. "Efficiency decomposition in two-stage data envelopment analysis: An application to non-life insurance companies in Taiwan," European Journal of Operational Research, Elsevier, vol. 185(1), pages 418-429, February.
    2. Thomas R. Berry-Stölzle & Gregory P. Nini & Sabine Wende, 2014. "External Financing in the Life Insurance Industry: Evidence From the Financial Crisis," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 81(3), pages 529-562, September.
    3. Schaper, Philipp, 2017. "Under pressure: how the business environment affects productivity and efficiency of European life insurance companiesAuthor-Name: Eling, Martin," European Journal of Operational Research, Elsevier, vol. 258(3), pages 1082-1094.
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    More about this item

    Keywords

    insurance market; life insurance; savings; Brownian bridge; random process; shares; bonds; binomial model;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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