Regression-Based Algorithms for Life Insurance Contracts with Surrender Guarantees

32 Pages Posted: 8 Nov 2007 Last revised: 18 Aug 2009

See all articles by Anna Rita Bacinello

Anna Rita Bacinello

University of Trieste - Dipartimento di Matematica Applicata

Enrico Biffis

Imperial College Business School

Pietro Millossovich

The Business School (formerly Cass); University of Trieste - Dipartimento di Scienze Aziendali Economiche Matematiche e Statistiche B. de Finetti

Date Written: October 1, 2007

Abstract

We present a general framework for pricing life insurance contracts embedding a surrender option. The model allows for several sources of risk, such as uncertainty in mortality, interest rates and other financial factors. We describe and compare two numerical schemes based on the Least Squares Monte Carlo method, emphasizing underlying modeling assumptions and computational issues.

Keywords: insurance contracts, surrender option, stochastic mortality, American contingent claims, Least Squares Monte Carlo method

Suggested Citation

Bacinello, Anna Rita and Biffis, Enrico and Millossovich, Pietro, Regression-Based Algorithms for Life Insurance Contracts with Surrender Guarantees (October 1, 2007). Available at SSRN: https://ssrn.com/abstract=1028325 or http://dx.doi.org/10.2139/ssrn.1028325

Anna Rita Bacinello

University of Trieste - Dipartimento di Matematica Applicata ( email )

Piazzale Europa, 1
Trieste, 34127
Italy

Enrico Biffis (Contact Author)

Imperial College Business School ( email )

Imperial College London
South Kensington campus
London, SW7 2AZ
United Kingdom

Pietro Millossovich

The Business School (formerly Cass) ( email )

Northampton Square
London, EC1V 0HB
United Kingdom

University of Trieste - Dipartimento di Scienze Aziendali Economiche Matematiche e Statistiche B. de Finetti ( email )

Piazzale Europa, 1
Trieste, 34127
Italy

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