Valuation of the Minimum Guaranteed Return Embedded in Life Insurance Products
Journal Of Risk And Insurance, Vol. 64, No. 4, December, 1997
Posted: 4 May 1998
In many countries, traditional life insurance products include a fixed percentage guarantee on each year's return. This article presents a model for the valuation of life insurance contracts including a guaranteed minimum return. The model is based on the notion of no arbitrage opportunities from the theories of financial economics and results in some closed-form solutions for market values of different guarantees. Numerical examples indicate that these guarantees may have substantial market values.
JEL Classification: G12
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