The fusion of insurance and financial structured products-a Monte Carlo valuation

Research output: Contribution to journalArticlepeer-review

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 contract), or the future value of the fund invested in a basket of risky assets. Whereas prior literature developed mathematical 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 estimated via MLE from real market data and conclude with numerical examples.
Original languageEnglish
Pages (from-to)20-28
Number of pages9
JournalInsurance markets and companies: analyses and actuarial computations
Volume4
Issue number2
StatePublished - 2013

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