Pricing life insurance contracts with early exercise features

Authors:
Anna Rita Bacinello;Enrico Biffis;Pietro Millossovich
Affiliations:
Department of Applied Mathematics, University of Trieste, Piazzale Europa 1, 34127 Trieste, Italy;Tanaka Business School, Imperial College London, South Kensington Campus, SW7 2AZ, United Kingdom;Department of Applied Mathematics, University of Trieste, Piazzale Europa 1, 34127 Trieste, Italy
Venue:
Journal of Computational and Applied Mathematics
Year:
2009

Citing 1
Cited 2

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Fast simulation of equity-linked life insurance contracts with a surrender option

Proceedings of the 40th Conference on Winter Simulation
Original article: A dimension-reduction algorithm for the valuation of surrender options in EIA contracts with stochastic interest rates

Mathematics and Computers in Simulation

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Abstract

In this paper we describe an algorithm based on the Least Squares Monte Carlo method to price life insurance contracts embedding American options. We focus on equity-linked contracts with surrender options and terminal guarantees on benefits payable upon death, survival and surrender. The framework allows for randomness in mortality as well as stochastic volatility and jumps in financial risk factors. We provide numerical experiments demonstrating the performance of the algorithm in the context of multiple risk factors and exercise dates.