Design and Pricing of Equity-Linked Life Insurance Under Stochastic Interest Rates

26 Pages Posted: 14 Jul 2001

See all articles by Anna Rita Bacinello

Anna Rita Bacinello

Università degli Studi di Trieste

Svein-Arne Persson

Norwegian School of Economics (NHH)

Date Written: December 1, 2000

Abstract

A valuation model for equity-linked life insurance contracts incorporating stochastic interest rates is presented. Our model generalizes some previous pricing results of Aase and Persson (1994) and Ekern and Persson (1996), based on deterministic interest rates. Moreover, a design of a new equity-linked product with some appealing features is proposed and compared with the periodical premium contract of Brennan and Schwartz (1976). Our new product is very simple to price and may easily be hedged either by long positions in the mutual fund of linkage or by European call options on the same fund.

Suggested Citation

Bacinello, Anna Rita and Persson, Svein-Arne, Design and Pricing of Equity-Linked Life Insurance Under Stochastic Interest Rates (December 1, 2000). EFA 2001 Barcelona Meetings. Available at SSRN: https://ssrn.com/abstract=276701 or http://dx.doi.org/10.2139/ssrn.276701

Anna Rita Bacinello

Università degli Studi di Trieste

Piazzale Europa 1
Trieste, Trieste 34100
Italy

Svein-Arne Persson (Contact Author)

Norwegian School of Economics (NHH) ( email )

Helleveien 30
Bergen, NO-5045
Norway
47-55-95-90-00 (Phone)
47-55-95-96-47 (Fax)

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