Fair pricing of life insurance participating policies with embedded surrender option under stochastic interest rate model
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Date
June 2016
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Abstract
The study analysed life insurance endowment policy, paid by sequence of periodical
premiums with guaranteed minimum return to the policyholder. The main
objective of the research is to estimate the \fair price" of life insurance participating
policy under stochastic interest rate model, in particular, the study considered
both the case in which the premium is constant and the case in which it is periodically
adjusted according to the performance of a special investment portfolio
(reference portfolio). This premium is implicitly de ned by an equation based on
the actuarial principle of equivalence. Furthermore, the policy under examination
is characterized by the presence of a surrender option, i.e., an American-style
option that entitles policy owners to early terminate the contract and to receive
a surrender cash value implied by a surrender charge. The study employed extended
two-dimensional Cox- Ross and Rubinstein model to numerically estimate
the \fair price" of the embedded surrender option.
Description
A thesis submitted to the Department of Mathematics,
Kwame Nkrumah University of Science and Technology In
partial fulfillment of the requirement for the Degree of M.Phil in Actuarial Science,