Fair valuation of equity-linked policies under insurer default risk

We consider the problem of computing the fair value of equity-linked policies with an interestrate guarantee when the insurer is subject to credit risk. The framework is developed based on modern financial theory using the no-arbitrage principle. In this context, an equity-linked policy is considered as a vulnerable contingent claim that expires before maturity if the firm asset value falls below a pre-specified default threshold depending on the firm’s liabilities. We derive a closed form formula in a continuous-time environment to compute the fair value of the contract. We also develop a discrete time model that allows us to address fair evaluation when the policy embeds a surrender option.

Fair valuation of equity-linked policies under insurer default risk / Costabile, Massimo; Massabo', Ivar; Russo, Emilio. - In: NORTH AMERICAN ACTUARIAL JOURNAL. - ISSN 1092-0277. - 15:4(2011), pp. 517-534.



Titolo: Fair valuation of equity-linked policies under insurer default risk
Autori: 
COSTABILE, Massimo
MASSABO', Ivar
RUSSO, Emilio
Data di pubblicazione: 2011
Rivista: 
NORTH AMERICAN ACTUARIAL JOURNAL  
Citazione: Fair valuation of equity-linked policies under insurer default risk / Costabile, Massimo; Massabo', Ivar; Russo, Emilio. - In: NORTH AMERICAN ACTUARIAL JOURNAL. - ISSN 1092-0277. - 15:4(2011), pp. 517-534.
Handle: http://hdl.handle.net/20.500.11770/154017
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http://hdl.handle.net/20.500.11770/154017
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