Minimum return rate guarantees under default risk: optimal design of quantile guarantees

Artikel

The paper analyzes the design of participating life insurance contracts with minimum return rate guarantees. Without default risk, the insured receives the maximum of a guaranteed rate and a participation in the investment returns. With default risk, the payoff is modified by a default put implying a compound option. We represent the yearly returns of the liabilities by a portfolio of plain vanilla options. In a Black and Scholes model, the optimal payoff constrained by a maximal shortfall probability can be stated in closed form. Due to the completeness of the market, it can be implemented for any equity to debt ratio.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Review of Managerial Science ; ISSN: 1863-6691 ; Volume: 15 ; Year: 2020 ; Issue: 7 ; Pages: 1821-1848 ; Berlin, Heidelberg: Springer

Classification and Topics

• Classification: Management
• Subject: Guarantee scheme ; Derivatives ; Life insurance ; Return rate guarantees ; Default risk ; Regulatory requirements ; Utility to the insured ; G 31 ; G 22

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Mahayni, Antje ; Lubos, Oliver ; Offermann, Sascha
• Event: Veröffentlichung
• (who): Springer
• (where): Berlin, Heidelberg
• (when): 2020

Further information

• DOI: doi:10.1007/s11846-020-00410-3
• Last update: 10.03.2025, 11:43 AM CET