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A risk management approach to the pricing of a single equity-linked contract

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  • JACQUES, MICHEL

Abstract

For a single equity-linked contract (hence with no mortality diversification), we examine the implications of using option pricing theory to fix the premium. We consider investment strategies involving the underlying, bonds and European puts and compute different probabilities of real loss at any time during the contract term, a form of VaR calculation. With the objective of chosing a strategy to minimize loss probabilities, we exhibit a variety of situations depending on the guarantee, the volatility and the age of the insured.

Suggested Citation

  • Jacques, Michel, 2003. "A risk management approach to the pricing of a single equity-linked contract," Journal of Pension Economics and Finance, Cambridge University Press, vol. 2(2), pages 159-179, July.
    • Handle: RePEc:cup:jpenef:v:2:y:2003:i:02:p:159-179_00
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    References listed on IDEAS

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    1. Aase Nielsen, J. & Sandmann, Klaus, 1995. "Equity-linked life insurance: A model with stochastic interest rates," Insurance: Mathematics and Economics, Elsevier, vol. 16(3), pages 225-253, July.
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    3. Windcliff, H. & Forsyth, P. A. & Vetzal, K. R., 2001. "Valuation of segregated funds: shout options with maturity extensions," Insurance: Mathematics and Economics, Elsevier, vol. 29(1), pages 1-21, August.
    4. Boyle, Phelim P. & Hardy, Mary R., 1997. "Reserving for maturity guarantees: Two approaches," Insurance: Mathematics and Economics, Elsevier, vol. 21(2), pages 113-127, November.
    5. Bacinello, Anna Rita & Ortu, Fulvio, 1993. "Pricing equity-linked life insurance with endogenous minimum guarantees : A corrigendum," Insurance: Mathematics and Economics, Elsevier, vol. 13(3), pages 303-304, December.
    6. Hans FÃllmer & Peter Leukert, 1999. "Quantile hedging," Finance and Stochastics, Springer, vol. 3(3), pages 251-273.
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    Cited by:

    1. Gan, Guojun, 2013. "Application of data clustering and machine learning in variable annuity valuation," Insurance: Mathematics and Economics, Elsevier, vol. 53(3), pages 795-801.

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