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A Lattice Approach to Evaluate Participating Policies in a Stochastic Interest Rate Framework

In: Mathematical and Statistical Methods for Actuarial Sciences and Finance

Author

Listed:
  • Massimo Costabile

    (University of Calabria)

  • Ivar Massabó

    (University of Calabria)

  • Emilio Russo

    (University of Calabria)

  • Alessandro Staino

    (University of Calabria)

Abstract

To achieve the accurate evaluation and management of the risk affecting long-term life insurance contracts, the insurer cannot leave aside the consideration of stochastic dynamics not only for the company’s assets but also for the interest rate. The aim of this paper is to provide a flexible method for evaluating participating policies, life insurance products that combine financial and demographic risks and provide benefits linked to the company’s asset returns. Participating policies embedding not only a minimum guaranteed bonus rate but also a surrender option are analyzed. The method is flexible in that it allows the insurer to choose the most appropriate dynamics, both for the interest rate and the company’s asset, among the ones widely diffused in finance. Lattice-based procedures are used to discretize the continuous time processes, and to provide a comprehensive evaluation method.

Suggested Citation

  • Massimo Costabile & Ivar Massabó & Emilio Russo & Alessandro Staino, 2021. "A Lattice Approach to Evaluate Participating Policies in a Stochastic Interest Rate Framework," Springer Books, in: Marco Corazza & Manfred Gilli & Cira Perna & Claudio Pizzi & Marilena Sibillo (ed.), Mathematical and Statistical Methods for Actuarial Sciences and Finance, pages 175-182, Springer.
    • Handle: RePEc:spr:sprchp:978-3-030-78965-7_26
    DOI: 10.1007/978-3-030-78965-7_26
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    Cited by:

    1. Paolo Angelis & Roberto Marchis & Antonio L. Martire & Emilio Russo, 2022. "A flexible lattice framework for valuing options on assets paying discrete dividends and variable annuities embedding GMWB riders," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 45(1), pages 415-446, June.

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