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Impacts of Jumps and Stochastic Interest Rates on the Fair Costs of Guaranteed Minimum Death Benefit Contracts

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  • François Quittard-Pinon

    (1] Université de Lyon, Lyon, F-69003, France; Université Lyon 1, ISFA, 50, avenue Tony Garnier, F-69366, France[2] EM Lyon Business School, 23, avenue Guy de Collongue, F-69134, France)

  • Rivo Randrianarivony

    (1] Université de Lyon, Lyon, F-69003, France; Université Lyon 1, ISFA, 50, avenue Tony Garnier, F-69366, France[2] EM Lyon Business School, 23, avenue Guy de Collongue, F-69134, France)

Abstract

The authors offer a new perspective to the field of guaranteed minimum death benefit contracts, especially for simple return premium and rising floor guarantees. A particular feature of these contracts is a guaranteed capital upon the insured's death. A complete methodology based on the generalized Fourier transform is proposed to investigate the impacts of jumps and stochastic interest rates. This paper thus extends Milevsky and Posner (2001). If jumps alone are considered, similar results are obtained, but, when stochastic interest rates are introduced, the fair costs of the guarantee feature are found to be substantially higher in this more general economy.

Suggested Citation

  • François Quittard-Pinon & Rivo Randrianarivony, 2011. "Impacts of Jumps and Stochastic Interest Rates on the Fair Costs of Guaranteed Minimum Death Benefit Contracts," The Geneva Risk and Insurance Review, Palgrave Macmillan;International Association for the Study of Insurance Economics (The Geneva Association), vol. 36(1), pages 51-73, June.
    • Handle: RePEc:pal:genrir:v:36:y:2011:i:1:p:51-73
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    Cited by:

    1. Nitu Sharma & S. Dharmaraja & Viswanathan Arunachalam, 2021. "A Time Series Framework for Pricing Guaranteed Lifelong Withdrawal Benefit," Computational Economics, Springer;Society for Computational Economics, vol. 58(4), pages 1225-1261, December.

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