The Fair Premium of an Equity-Linked Life and Pension Insurance

30 Pages Posted: 10 Mar 2002

See all articles by J. Aase Nielsen

J. Aase Nielsen

Aarhus University - Department of Theoretical Statistics and Operations Research

Klaus Sandmann

University of Bonn - The Bonn Graduate School of Economics

Date Written: February 20, 2002

Abstract

An equity linked life and pension insurance consists of a non-linear combination of a life and pension insurance with an investment strategy. In addition to the guaranteed payments the insured receives a bonus depending on the value of an investment strategy. The additional payment is similar to an Asian type option. Since the insurance contract combines mortality and financial risks in a non-linear way, the value or premium of the contract must reflect these uncertainties. Within this context a premium sequence is called fair if the accumulated expected discounted premium is equal to the accumulated expected discounted payments of the contract. This paper shows the existence of a fair periodic premium. For two different pension policies an approximation of the fair periodic premium is derived.

Keywords: Life insurance, pension funds, forward risk adjusted measure, Asian option

JEL Classification: G12, G22, G23

Suggested Citation

Nielsen, Jørgen Aase and Sandmann, Klaus, The Fair Premium of an Equity-Linked Life and Pension Insurance (February 20, 2002). Available at SSRN: https://ssrn.com/abstract=301969 or http://dx.doi.org/10.2139/ssrn.301969

Jørgen Aase Nielsen

Aarhus University - Department of Theoretical Statistics and Operations Research ( email )

DK-8000 Aarhus C
Denmark

Klaus Sandmann (Contact Author)

University of Bonn - The Bonn Graduate School of Economics ( email )

Adenauerallee 24-26
Bonn, D-53113
Germany

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