Design and Pricing of Equity-Linked Life Insurance Under Stochastic Interest Rates
26 Pages Posted: 14 Jul 2001
Date Written: December 1, 2000
Abstract
A valuation model for equity-linked life insurance contracts incorporating stochastic interest rates is presented. Our model generalizes some previous pricing results of Aase and Persson (1994) and Ekern and Persson (1996), based on deterministic interest rates. Moreover, a design of a new equity-linked product with some appealing features is proposed and compared with the periodical premium contract of Brennan and Schwartz (1976). Our new product is very simple to price and may easily be hedged either by long positions in the mutual fund of linkage or by European call options on the same fund.
Suggested Citation: Suggested Citation
Bacinello, Anna Rita and Persson, Svein-Arne, Design and Pricing of Equity-Linked Life Insurance Under Stochastic Interest Rates (December 1, 2000). Available at SSRN: https://ssrn.com/abstract=276701 or http://dx.doi.org/10.2139/ssrn.276701
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