Article ID Journal Published Year Pages File Type
9552807 Insurance: Mathematics and Economics 2005 20 Pages PDF
Abstract
We consider the fair valuation of a participating life insurance policy with surrender options when the market values of the asset are modelled by Markov-modulated Geometric Brownian Motion (GBM). We reduce the dimension of the optimal stopping problem for the policy by changing probability measures. We also provide a decomposition result for the value of the policy. The Barone-Adesi-Whaley approximation has been employed to approximate the solution of the free boundary problem for the policy by second-order piecewise linear ordinary differential equations (ODEs). The fair valuation of participating perpetual American contracts are also considered.
Related Topics
Physical Sciences and Engineering Mathematics Statistics and Probability
Authors
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