Abstract
The paper presents the valuation of contracts that combine financial structured products and insurance policies - pure endowment insurance and risk insurance contracts. The embedded options in these products promise, upon exercise, the higher of either the future value of the invested fund in risk-free interest rates (which is defined in the option con- tract), or the future value of the fund invested in a basket of risky assets. Whereas prior literature developed mathemat- ical expressions for continuous processes, the study allows for jumps, admitting leptokurtic distributions of the risky assets stochastic processes. The authors solve the model numerically using Monte Carlo with parameters that are esti- mated via MLE from real market data and conclude with numerical examples.
Original language | English |
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Pages (from-to) | 20-28 |
Number of pages | 9 |
Journal | Insurance Markets and Companies |
Volume | 4 |
Issue number | 2 |
State | Published - Dec 2013 |