Arbeitspapier
The effect of policyholders' rationality on unit-linked life insurance contracts with surrender guarantees
We study the valuation of unit-linked life insurance contracts with surrender guarantees. Instead of solving an optimal stopping problem, we propose a more realistic approach accounting for policyholders’ rationality in exercising their surrender option. The valuation is conducted at the portfolio level by assuming the surrender intensity to be bounded from below and from above. The lower bound corresponds to purely exogenous surrender and the upper bound represents the limited rationality of the policyholders. The valuation problem is formulated by a valuation PDE and solved with the finite difference method. We show that the rationality of the policyholders has a significant effect on average contract value and hence on the fair contract design. We also present the separating boundary between purely exogenous surrender and endogenous surrender. This provides implications on the predicted surrender activity of the policyholders.
- Sprache
-
Englisch
- Erschienen in
-
Series: Bonn Econ Discussion Papers ; No. 22/2010
- Klassifikation
-
Wirtschaft
Contingent Pricing; Futures Pricing; option pricing
Insurance; Insurance Companies; Actuarial Studies
Miscellaneous Mathematical Tools
- Thema
-
Unit-linked life insurance contracts
surrender guarantee
limited rationality
fair contract analysis
Lebensversicherung
Investmentfonds
Rückvergütung
Bewertung
Vertrag
Gerechtigkeit
Theorie
- Ereignis
-
Geistige Schöpfung
- (wer)
-
Li, Jing
Szimayer, Alexander
- Ereignis
-
Veröffentlichung
- (wer)
-
University of Bonn, Bonn Graduate School of Economics (BGSE)
- (wo)
-
Bonn
- (wann)
-
2010
- Handle
- Letzte Aktualisierung
-
10.03.2025, 11:41 MEZ
Datenpartner
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Objekttyp
- Arbeitspapier
Beteiligte
- Li, Jing
- Szimayer, Alexander
- University of Bonn, Bonn Graduate School of Economics (BGSE)
Entstanden
- 2010
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