Skip to main content
SpringerLink
Log in

Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts

  • Chapter
Financial Risk and Derivatives

Abstract

An equity-linked life insurance contract combines an endowment life insurance and an investment strategy with a minimum guarantee. The benefit of this contract is determined by the guaranteed amount plus a bonus equal to a call on the portfolio. This bonus is similar to an Asian option. This article analyzes the relationship between the periodic insurance premium and its proportional share invested into the portfolio. For a general model of the financial risks we show the existence and uniqueness of an insurance premium. Furthermore the premium is strictly increasing and convex as a function of the share invested.

This is a preview of subscription content, log in via an institution to check access.

Access this chapter

Log in via an institution
Chapter
USD 29.95
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
eBook
USD 84.99
Price excludes VAT (USA)
  • Available as PDF
  • Read on any device
  • Instant download
  • Own it forever
Softcover Book
USD 109.99
Price excludes VAT (USA)
  • Compact, lightweight edition
  • Dispatched in 3 to 5 business days
  • Free shipping worldwide - see info

Tax calculation will be finalised at checkout

Purchases are for personal use only

Institutional subscriptions

Preview

Unable to display preview. Download preview PDF.

Unable to display preview. Download preview PDF.

References

  • AASE, K.K., and PERSSON, S. [1994]: “Pricing of Unit-Linked Life Insurance Policies,” Scandinavian Actuarial Journal, 1, 26–52.

    Google Scholar 

  • BACINELLO, A.R., and ORTU, F. [1993a]: “Pricing Equity-Linked Life Insurance with Endogenous Minimum Guarantees,” Insurance: Mathematics and Economics, 12, 245–257.

    Article  Google Scholar 

  • BACINELLO, A.R., and ORTU, F. [1993b]: “Pricing Guaranteed Securities-Linked Life Insurance Under Interest-Rate Risk,” Actuarial Approach for Financial Risks, 35–55.

    Google Scholar 

  • BACINELLO, A.R., and ORTU, F. [1994]: “Single and Periodic Premiums for Guaranteed Equity-Linked Life Insurance Under Interest-Rate Risk: The ‘Log-normal + Vasicek’ Case,” in Financial Modelling, L. Peccati and M. Viren (Eds.), Physica-Verlag, Heidelberg.

    Google Scholar 

  • BRENNAN, M.J., and SCHWARTZ, E. [1976]: “The Pricing of Equity-Linked Life Insurance Policies with an Asset Value Guarantee,” Journal of Financial Economics, 3, 195–213.

    Article  Google Scholar 

  • BRENNAN, M.J., and SCHWARTZ, E. [1979]: “Pricing and Investment Strategies for Equity-Linked Life Insurance,” Huebner Foundation Monograph 7, Wharton School, University of Pennsylvania, Philadelphia.

    Google Scholar 

  • DELBAEN, F. [1990]: “Equity-Linked Policies,” Bulletin Association Royal Actuaires Beiges, 33–52.

    Google Scholar 

  • EKERN, S., and PERSSON, S.–A. [1996]: “Exotic Unit-Linked Life Insurance Contracts,” The Geneva Papers on Risk and Insurance Theory, 21, 35–63.

    Article  Google Scholar 

  • ELKAROUI, N., LEPAGE, C., MYNENI, R., ROSEAU, N., and VISWANATHAN, R. [1991]: “The Valuation and Hedging of Contingent Claims with Markovian Interest Rate,” Working paper, Université de Paris 6.

    Google Scholar 

  • GEMAN, H., ELKAROUI, N., and ROCHET, J.–C. [1995]: “Changes of Numeraire, Changes of Probability Measure and Option Pricing,” Journal of Applied Probability, 32, 443–458.

    Article  Google Scholar 

  • HO, T.S., and LEE, S.–B. [1986]: “Term Structure Movements and Pricing Interest Rate Contingent Claims,” Journal of Finance, 41, 1011–1029.

    Article  Google Scholar 

  • JAMSHIDIAN, F. [1989]: “An Exact Bond Option Formula,” Journal of Finance, 44, 205–209.

    Article  Google Scholar 

  • JAMSHIDIAN, F. [1991]: “Bond and Option Evaluation in the Gaussian Interest Rate Model,” Research in Finance, 9, 131–170.

    Google Scholar 

  • NIELSEN, J., and SANDMANN, K. [1995]: “Equity-Linked Life Insurance: A Model with Stochastic Interest Rates,” Insurance, Mathematics and Economics, 16, 225–253.

    Article  Google Scholar 

  • PERSSON, S.A. [1994]: “Pricing Life Insurance Contracts Under Financial Uncertainty,” Doctoral dissertation, Norwegian School of Economics and Business Administration, Bergen.

    Google Scholar 

  • TURNBULL, S.M., and WAKEMAN, L.M. [1991]: “A Quick Algorithm for Pricing European Average Options,” Journal of Financial and Quantitative Analysis, 26, 377–389.

    Article  Google Scholar 

  • VORST, T. [1992]: “Prices and Hedge Ratios of Average Exchange Rate Options,” International Review of Financial Analysis, 1, 179–193.

    Article  Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of Operations Research, University of Aarhus, Bldg. 530, Ny Munkegade, DK-8000, Aarhus C, Denmark

    J. Aase Nielsen

  2. Department of Statistics, Rheinische Friedrich-Wilhelms-Universität Bonn, Adenauerallee 24–42, D-53113, Bonn, Germany

    Klaus Sandmann

Authors
  1. J. Aase Nielsen
    View author publications

    You can also search for this author in PubMed Google Scholar

  2. Klaus Sandmann
    View author publications

    You can also search for this author in PubMed Google Scholar

Editor information

Henri Loubergé Marti G. Subrahmanyam

Rights and permissions

Reprints and permissions

Copyright information

© 1996 The Geneva Association

About this chapter

Cite this chapter

Nielsen, J.A., Sandmann, K. (1996). Uniqueness of the Fair Premium for Equity-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_5

Download citation

  • DOI: https://doi.org/10.1007/978-94-009-1826-9_5

  • Publisher Name: Springer, Dordrecht

  • Print ISBN: 978-94-010-7314-1

  • Online ISBN: 978-94-009-1826-9

  • eBook Packages: Springer Book Archive

Publish with us

Policies and ethics

Search

Navigation