Abstract
This article integrates aspects of traditional insurance with advances in financial economics, yielding proper valuation and premium assessments of insurance benefits linked to various financial assets. Several new types of unit-linked life insurance contracts are discussed, with substantial potential for real-life applications. Compared to usual unit-linked products, these contracts offer added flexibility and/or altered exposure to financial risk for the insured and/or the insurer. The single premiums of these policies are calculated as expectations under a risk-adjusted probability measure (equivalent martingale measure), satisfying no-arbitrage conditions in financial markets.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Preview
Unable to display preview. Download preview PDF.
References
AASE, K.K., and PERSSON, S.A. [1994]: “Pricing of Unit-Linked Life Insurance Policies,” Scandinavian Actuarial Journal, 26–52.
ABRAMOWITZ, M., and STEGUN, I.A. (Eds.). [1970]: Handbook of Mathematical Functions, National Bureau of Standards Applied Mathematics Series 55, U.S. Government Priting Office, Washington, D.C. 20402.
BACINELLO, A.R., and ORTU, F. [1993a]: “Pricing Equity-Linked Life Insurance with Endogenous Minimum Guarantees,” Insurance: Mathematics and Economics, 12, 245–257.
BACINELLO, A.R., and ORTU, F. [1993b]: “Pricing Guaranteed Securities-Linked Life Insurance Under Interest-Rate Risk,” Actuarial Approach for Financial Risk, Transactions of the Third AFIR International Colloquium, Rome, 35–55.
BACINELLO, A.R., and ORTU, F. [1994]: “Single and Periodic Premiums for Guaranteed Equity-Linked Life Insurance under Interest Rate Risk: The Lognormal + Vacisek Case,” Financial Modelling, L. Peccati and M. Viren (Eds.), Physica-Verlag, Heidelberg, Germany, 1–25.
BACINELLO, A.R., and ORTU, F. [1995]: “Fixed Income Linked Life Insurance Policies with Minimum Guarantees: Pricing Models and Numerical Results,” Working paper, University of Cassino, Via Mazzaropi, 03043 Cassino (FR), Italy.
BLACK, F., and SCHOLES, M. [1973]: “The Pricing of Options and Corporate Liabilities,” Journal of Political Economy, 81, 637–654.
BOYLE, P.P., and SCHWARTZ, E.S. [1977]: “Equilibrium Prices of Guarantees Under Equity-Linked Contracts,” Journal of Risk and Insurance, 44, 639–680.
BRENNAN, M. J., and SCHWARTZ, E.S. [1976]: “The Pricing of Equity-Linked Life Insurance Policies with an Asset Value Guarantee,” Journal of Financial Economics, 3, 195–213.
BRENNAN, M. J., and SCHWARTZ, E.S. [1979a]: “Alternative Investment Strategies for the Issuers of Equity Linked Life Insurance with an Asset Value Guarantee,” Journal of Business, 52, 63–93.
BRENNAN, M. J., and SCHWARTZ, E.S. [1979b]: Pricing and Investment Strategies for Equity-Linked Life Insurance, Monograph no. 7/The S.S. Huebner Foundation for Insurance Education, Wharton School, University of Pennsylvania, Philadelphia.
BROADIE, M., and DETEMPLE, J. [1995]: “American Capped Call Options on Dividend-Paying Assets,” The Review of Financial Studies, 8, 161–191.
DELBAEN, F. [1990]: “Equity Linked Policies,” Bulletin Association des Actuaires Beiges, 33–52.
DUFFIE, D. [1992]: Dynamic Asset Pricing Theory, University Press, Princeton, New Jersey.
DYBVIG, PH., and ROSS, S.A. [1992]: “Arbitrage,” in The New Palgrave Dictionary of Money and Finance, Peter Newman, Murray Milgate, and John Eatwell (Eds.), Macmillan Press, London.
HARRISON, J.M., and KREPS, J. [1979]: “Martingales and Multiperiod Securities Markets,” Journal of Economic Theory, 20, 381–408.
HULL, J.C. [1993]: Options, Futures, and Other Derivative Securities, Second Ed., Prentice-Hall International, Englewood Cliffs, NJ 07632.
JOHNSON, H. [1987]: “Options on the Maximum or the Minimum of Several Assets,” Journal of Financial and Quantitative Analysis, 22, 277–283.
MARGRABE, W. [1978]: “The Value of an Option to Exchange One Asset for Another,” Journal of Finance, 33, 177–186.
NIELSEN, J. A. [1993]: “Equity-Linked Life Insurance Contracts in an Economy with a Stochastic Development of the Term Structure of Interest Rates,” Department of Operations Research, Aarhus University.
NIELSEN, J.A., and SANDMANN, K. [1995]: “Equity-Linked Life Insurance: A Model with Stochastic Interest Rates,” Insurance: Mathematics and Economics, 16, 225–253.
PERSSON, S.A. [1994]: “Pricing Life Insurance Contracts Under Financial Uncertainty,” Doctoral dissertation, Norwegian School of Economics and Business Administration, Bergen.
STULZ, R. [1982]: “Options on the Minimum or Maximum of Two Assets,” Journal of Financial Economics, 10, 161–185.
Author information
Authors and Affiliations
Editor information
Rights and permissions
Copyright information
© 1996 The Geneva Association
About this chapter
Cite this chapter
Ekern, S., Persson, SA. (1996). Exotic Unit-Linked Life Insurance Contracts. In: Loubergé, H., Subrahmanyam, M.G. (eds) Financial Risk and Derivatives. Springer, Dordrecht. https://doi.org/10.1007/978-94-009-1826-9_4
Download citation
DOI: https://doi.org/10.1007/978-94-009-1826-9_4
Publisher Name: Springer, Dordrecht
Print ISBN: 978-94-010-7314-1
Online ISBN: 978-94-009-1826-9
eBook Packages: Springer Book Archive