DocumentCode :
2966215
Title :
Valuation of Universal Policies with a Smoothing Scheme: The Chinese Case
Author :
Zhou Hua
Author_Institution :
Sch. of Insurance, Central Univ. of Finance & Econ., Beijing, China
fYear :
2011
fDate :
12-14 Aug. 2011
Firstpage :
1
Lastpage :
6
Abstract :
Universal life insurance contracts, which usually have the so-called cliquet syle interest rate guarantees, are quite popular in China. These contracts often include other options such as the surrender option. This paper attempts to valuate these policies using the risk-neutral pricing method of financial mathematics. The framework in which the fair value of these policies is priced in a stochastic interest rate environment is presented. We analyze the guaranteed interest rate option and the surrender option separately. The values of embedded options are derived using the Least Square Monte Carlo approach. Using the calibrated parameters, we find out that the stochastic interest rate assumption affects the valuation considerably in comparison to the constant interest rate. Additionally, the volatility of assets and the smoothing mechanism are important for valuing the policyholder s´ claim.
Keywords :
Monte Carlo methods; contracts; government policies; insurance; pricing; stochastic processes; cliquet syle interest rate guarantees; financial mathematics; least square Monte Carlo approach; risk-neutral pricing; smoothing scheme; stochastic interest rate assumption; stochastic interest rate environment; surrender option; universal life insurance contract; universal policy; Contracts; Cost accounting; Economic indicators; Europe; Insurance; Portfolios; Smoothing methods;
fLanguage :
English
Publisher :
ieee
Conference_Titel :
Management and Service Science (MASS), 2011 International Conference on
Conference_Location :
Wuhan
Print_ISBN :
978-1-4244-6579-8
Type :
conf
DOI :
10.1109/ICMSS.2011.5998342
Filename :
5998342
Link To Document :
بازگشت