Asset Liability Management in Insurance Company
The model, by using the option theory, determines the fair value of the policies life with different time of maturity and shows that the effective liabilities duration of an Insurance Company exposed to the default-risk is different from the duration of a default-free zero coupon bond with the same time of maturity. Furthermore, it shows that the value of equity can be immunized in a dynamic way with respect to the movement of the spot-rate by selling and purchasing the default-free bonds in the firm asset. Moreover, the equity value, by the right bond allocation, can be immunized without varying continually the weight of the bonds on the firm asset. Furthermore, it considers the surrender option and the mortally issue such that it corrects some pitfalls that are commonly encountered in the insurance industry.
|Date of creation:||Jun 2006|
|Date of revision:||Jan 2009|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
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- Briys, Eric & de Varenne, François, 1997. "Valuing Risky Fixed Rate Debt: An Extension," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(02), pages 239-248, June.
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- Giandomenico, Rossano, 2006. "Martingale Model," MPRA Paper 21973, University Library of Munich, Germany.
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"On the pricing of corporate debt: the risk structure of interest rates,"
684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-70, May.
- Giandomenico, Rossano, 2006. "Pricing of the Policy Life in Absence of Default Risk and Asset Liability Management," MPRA Paper 18844, University Library of Munich, Germany.
- Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
- Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
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