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Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts

In: Financial Risk and Derivatives

Author

Listed:
  • J. Aase Nielsen

    (University of Aarhus, Department of Operations Research)

  • Klaus Sandmann

    (Rheinische Friedrich-Wilhelms-Universität Bonn, Department of Statistics)

Abstract

An equity-linked life insurance contract combines an endowment life insurance and an investment strategy with a minimum guarantee. The benefit of this contract is determined by the guaranteed amount plus a bonus equal to a call on the portfolio. This bonus is similar to an Asian option. This article analyzes the relationship between the periodic insurance premium and its proportional share invested into the portfolio. For a general model of the financial risks we show the existence and uniqueness of an insurance premium. Furthermore the premium is strictly increasing and convex as a function of the share invested.

Suggested Citation

  • J. Aase Nielsen & Klaus Sandmann, 1996. "Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts," Springer Books, in: Henri Loubergé & Marti G. Subrahmanyam (ed.), Financial Risk and Derivatives, pages 65-102, Springer.
    • Handle: RePEc:spr:sprchp:978-94-009-1826-9_5
    DOI: 10.1007/978-94-009-1826-9_5
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