IDEAS home Printed from
   My bibliography  Save this paper

Multi-state models for evaluating conversion options in life insurance


  • Guglielmo D'Amico
  • Montserrat Guillen
  • Raimondo Manca
  • Filippo Petroni


In this paper we propose a multi-state model for the evaluation of the conversion option contract. The multi-state model is based on age-indexed semi-Markov chains that are able to reproduce many important aspects that influence the valuation of the option such as the duration problem, the time non-homogeneity and the ageing effect. The value of the conversion option is evaluated after the formal description of this contract.

Suggested Citation

  • Guglielmo D'Amico & Montserrat Guillen & Raimondo Manca & Filippo Petroni, 2017. "Multi-state models for evaluating conversion options in life insurance," Papers 1707.01028,
  • Handle: RePEc:arx:papers:1707.01028

    Download full text from publisher

    File URL:
    File Function: Latest version
    Download Restriction: no

    References listed on IDEAS

    1. Guglielmo D'Amico & Filippo Petroni, 2012. "Weighted-indexed semi-Markov models for modeling financial returns," Papers 1205.2551,, revised Jun 2012.
    2. Kwon, Hyuk-Sung & Jones, Bruce L., 2008. "Applications of a multi-state risk factor/mortality model in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 43(3), pages 394-402, December.
    3. Maegebier, Alexander, 2013. "Valuation and risk assessment of disability insurance using a discrete time trivariate Markov renewal reward process," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 802-811.
    4. Guglielmo D'Amico & Filippo Petroni, 2011. "A semi-Markov model with memory for price changes," Papers 1109.4259,, revised Dec 2011.
    5. Su, Karen C., 2010. "The conversion option in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 46(3), pages 437-442, June.
    6. Kwon, Hyuk-Sung & Jones, Bruce L., 2006. "The impact of the determinants of mortality on life insurance and annuities," Insurance: Mathematics and Economics, Elsevier, vol. 38(2), pages 271-288, April.
    7. Nordahl, Helge A., 2008. "Valuation of life insurance surrender and exchange options," Insurance: Mathematics and Economics, Elsevier, vol. 42(3), pages 909-919, June.
    8. Guglielmo D’Amico & Jacques Janssen & Raimondo Manca, 2011. "Discrete Time Non-Homogeneous Semi-Markov Reliability Transition Credit Risk Models and the Default Distribution Functions," Computational Economics, Springer;Society for Computational Economics, vol. 38(4), pages 465-481, November.
    Full references (including those not matched with items on IDEAS)

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:arx:papers:1707.01028. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.