Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5077417 | Insurance: Mathematics and Economics | 2010 | 9 Pages |
Abstract
This paper addresses the calculation of a fair profit sharing rate for participating policies with a minimum interest rate guaranteed. The bonus credited to policies depends on the performance of a basket of two assets: a stock and a zero coupon bond and on the guarantee. The dynamics of the instantaneous short rates are driven by a Hull and White model, whereas the stocks follow a double exponential jump-diffusion model. The participation level is determined such that the return retained by the insurer is sufficient to hedge the interest rate guaranteed. Given that the return of the total asset is not lognormal, we rely on a Fast Fourier Transform to compute the fair value of bonus and guarantee options.
Keywords
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Donatien Hainaut,