Market Value of Life Insurance Contracts Under Stochastic Interest Rates and Default Risk

23 Pages Posted: 8 Feb 2017

See all articles by Carole Bernard

Carole Bernard

Grenoble Ecole de Management; Vrije Universiteit Brussel (VUB)

Olivier Le Courtois

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

Francois Quittard-Pinon

EMLYON Business School

Date Written: January 21, 2005

Abstract

The purpose of this article is to value some life insurance contracts in a stochastic interest rate environment taking into account the default risk of the underlying insurance company. The participating life insurance contracts considered here can be expressed as portfolios of barrier options as shown by Grosen and Jørgensen [1997]. In order to price these options, the Longstaff and Schwartz [1995] methodology is used with the Collin-Dufresne and Gold- stein [2001] correction.

Keywords: Participating Life Insurance Policies, Contingent Claims Valuation, Default Risk, Stochastic Interest Rates, Fortet’s Equation

JEL Classification: G13, G22

Suggested Citation

Bernard, Carole and Le Courtois, Olivier Arnaud and Quittard-Pinon, Francois, Market Value of Life Insurance Contracts Under Stochastic Interest Rates and Default Risk (January 21, 2005). Insurance: Mathematics and Economics, Vol. 36, No. 3, 2005. Available at SSRN: https://ssrn.com/abstract=2912836

Carole Bernard

Grenoble Ecole de Management ( email )

12, rue Pierre Sémard
Grenoble Cedex, 38003
France

Vrije Universiteit Brussel (VUB) ( email )

Pleinlaan 2
http://www.vub.ac.be/
Brussels, 1050
Belgium

Olivier Arnaud Le Courtois (Contact Author)

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )

23, av. Guy de Collongue
69134 Ecully Cedex
France

Francois Quittard-Pinon

EMLYON Business School ( email )

23, Avenue Guy de Collongue
69134, Ecully
France

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