Return Guarantees with Delayed Payment
27 Pages Posted: 17 May 2006
A unit-linked insurance contract can be formulated in terms of a guaranteed amount together with a fraction of a positive excess return of a benchmark portfolio. Normally, the excess return is determined annually and accumulated until the maturity of the contract. The accumulation factor which is granted with respect to the delayed payments can either be deterministic or equal to the (stochastic) bank account. It turns out that the common choice of a deterministic accumulation factor gives rise to problems concerning the pricing and the risk management of the insurance contract.
Keywords: Periodic return guarantees, life insurance, robust hedging
JEL Classification: G13, G22, G23
Suggested Citation: Suggested Citation