A Lévy process-based framework for the fair valuation of participating life insurance contracts

In this communication, we develop suitable valuation techniques for a with-profit/unitized with profit life insurance policy providing interest rate guarantees, when a jump-diffusion process for the evolution of the underlying reference portfolio is used. Particular attention is given to the mispricing generated by the misspecification of a jump-diffusion process for the underlying asset as a pure diffusion process, and to which extent this mispricing affects the profitability and the solvency of the life insurance company issuing these contracts.