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1 edition of The Valuation of Insurance Contracts in an Option Pricing Framework found in the catalog.

The Valuation of Insurance Contracts in an Option Pricing Framework

Rainer Schobel

The Valuation of Insurance Contracts in an Option Pricing Framework

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Published by Technische Universitat Berlin, Institut fur Wirtschaftswissenschaftliche Dokumentation in Berlin .
Written in English


The Physical Object
Pagination15 p.
Number of Pages15
ID Numbers
Open LibraryOL24707675M

  () Fair Valuation of Life Insurance Contracts Under a Two-Sided Jump Diffusion Model. Communications in Statistics - Theory and Methods , () A Spectral Element Framework for Option Pricing Under General Exponential Lévy by:   Proper pricing and risk assessment of implicit options in life insurance contracts has gained substantial attention in recent years, which is reflected in a growing literature in this field. In this article, we first present the different contract designs in Europe and the United States and point out differences in the contract design. Second, a comprehensive overview and Cited by:   Fair Pricing of Life Insurance Participating Policies with a Minimum Interest Rate Guaranteed. Proceedings of the Tenth AFIR International Colloquium, Tromsø, 1 – Black, F. and Scholes, M. ().Cited by: Our global Fair value measurements guide is a comprehensive resource for reporting entities applying the key fair value measurements accounting standards under both US GAAP and IFRS. In this guide, we describe the key accounting concepts and requirements of both frameworks. We also include specific discussion of the impact of the fair value measurement requirements in .


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The Valuation of Insurance Contracts in an Option Pricing Framework by Rainer Schobel Download PDF EPUB FB2

Get this from a library. The valuation of insurance contracts in an option pricing framework. [Rainer Schöbel]. Options and Guarantees in Life Insurance.

with profit life insurance contracts: fair valuation problem in The goal is to propose an integrated pricing framework for CVA based on a.

Because the values of option contracts depend on a number of different variables in addition to the value of the underlying asset, they are complex to value. There are many pricing models in use, although all essentially incorporate the concepts of rational pricing (i.e.

risk neutrality), moneyness, option time value and put-call parity. The valuation itself combines (1) a model of. arbitrage-free valuation of insurance futures contracts, extending the analysis in G-Y (, ).

We begin by developing a pricing model for non. CASUALTY INSURANCE The Valuation of Insurance Contracts in an Option Pricing Framework book.

NON-INSURANCE PRICING •Cost to manufacture •Profit margin •Competitive Position •Mostly locked in before sale. INSURANCE PRICING •Lacks the statistical framework seen in GLMs •Simple and effective method that can lead to.

an insurance company affects the value of the contract considerably. In addition, we study the sensitivity of the contract value with respect to the participation rules applied, the regulatory framework and the relevant asset value movements.

Keywords: with-profits life insurance contracts, risk-neutral valuation, interest. With a general valuation/risk measurement framework in hand, you'll then be introduced to derivative contracts in specific asset categories.

The remaining parts () of this comprehensive guide are arranged by the nature of the asset underlying the derivatives contract--stocks are discussed first, then stock indexes, currencies, interest rates Cited by:   Price-Based Option: A derivative financial instrument in which the underlying asset is a debt security.

Typically, these options give their holders the right to purchase or sell an underlying debt. Revised: October 5 Option Pricing Theory In a paper4, Robert Merton showed that the equity of a firm could be viewed as a call option on the assets of the firm with a strike price equal to the (undiscounted) value of the Size: KB.

Black Scholes Model: The Black Scholes model, also known as the Black-Scholes-Merton model, is a model of price variation over time of financial instruments such as stocks that can, among other Author: Will Kenton.

The valuation of such an option, in the case of two risky assets with lognormal returns, was first done by Margrabe (), using the Black and Scholes () solution of option pricing. The exchange option described in this paper is for the customer to change a contingent claim on one life insurance company into a similar claim on another by: Real options valuation, also often termed real options analysis, (ROV or ROA) applies option valuation techniques to capital budgeting decisions.

A real option itself, is the right—but not the obligation—to undertake certain business initiatives, such as deferring, abandoning, expanding, staging, or contracting a capital investment project.

For example, the opportunity to invest in. Surrender option in life insurance contracts • Surrender option: possibility to terminate the insurance contract • The surrender option pricing problem corresponds to the valuation of a contingent the objective of this lecture is not to provide a complete insurance risk management framework for life insurance policies with embedded.

In this section we provide a more detailed description of the life insurance contracts and pension plan products which we will analyze. Furthermore, we introduce the basic model to be used in the analysis and valuation of these contracts, especially the valuation of various embedded option elements.

The basic framework is as by: This paper surveys the literature on option pricing from its origins to the present. An extensive review of valuation methods for European- and American-style claims is provided.

Applications to complex securities and numerical methods are by: A General Manager’s Guide to Valuation. by ; ownership claims and write good contracts.

the limitations of both the framework and the methodology. Option pricing does not fit naturally. addresses the valuation of insurance companies. The section starts by discussing the primary drivers of insurers’ intrinsic value, including profitability, growth prospects and cost of equity capital, as well as accounting quality indicators that inform on.

Fair pricing of embedded options in life insurance contracts is usually conducted by using risk-neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this article, we extend the risk-neutral valuation concept with a risk measurement approach.

valuation 6, uses option pricing models to measure the value of assets that share option characteristics. Each approach is applicable for bank valuation with several conditions. Asset-based approach The asset-based valuation of a bank requires valuing the File Size: 96KB.

The most important financial models are associated with capital market equilibrium (e.g., the insurance Capital Asset Pricing Model (CAPM)) and option pricing theory. (14) Their economic foundation is the pricing of insurance contracts so as not to worsen the financial position of the (re)insurance company's shareholders.

Valuation approaches and techniques 40 G. Inputs to valuation techniques 50 H. Fair value hierarchy 61 I. Fair value at initial recognition 70 J. Highest and best use 75 K. Liabilities and own equity instruments 79 L. Portfolio measurement exception 88 M.

financial profit-sharing rules. These savings contracts operate as deposit funds, entailing no insurance risk, and offer the option to surrender at any time.

These contracts represent the industry norm; because of regulatory incentives they comprise the main portion of savings in France. In Europe, the French life insurance market is the second. Modern option pricing theory was developed in the late sixties and early seventies by F.

Black, R. Merton and M. Scholes as an analytical tool for pricing and hedging option contracts and over-the-counter warrants. How­ ever, already in the seminal.

The Black-Scholes Framework To the policyholder, the payo from a GMMB contract is very similar to that of a put option. It makes sense for us to recall the Black-Scholes framework from option pricing context. We assume that the underlying asset S tfollows a geometric Brownian motion dS t S t = ()dt+ ˙dW t (7)File Size: KB.

His example chooses the policyholder option to surrender and values this option under varying investment strategies in a sample set of interest rate scenarios.

Today, some 30 years later, the Distributable Earnings method is widely recognized as the method of pricing and valuing transactions involving insurance contracts and entities.

DERIVATIVES (SWAPS) VALUATION. Incorporation of new market realities into pricing. Multi-curve framework (depending on collateralization) Inclusion of proper valuation adjustments.

Valuation of derivatives as part of a whole portfolio. Valuation challenges in credit institutions and investment firms. Case study 1 – The changing environment. Modem option pricing theory was developed in the late sixties and early seventies by F.

Black, R. Merton and M. Scholes as an analytical tool for pricing and hedging option contracts and over-the-counter warrants. However, already in the seminal paper by Brand: Springer-Verlag Berlin Heidelberg. of life insurance products, most valuation models allowing for sophisticated bonus distribution rules and the inclusion of frequently offered options assume a simple Black-Scholes setup and, in particular, deterministic or even constant interest rates.

We present a framework in which participating life insurance contracts including. Option pricing models are now used to price virtually the full range of financial instruments and financial guarantees such as deposit insurance and collateral, and to quantify the associated risks.

Over the years, option pricing has evolved from a set of specific models to a general analytical framework for analyzing the production process of. Black, F. and M. Scholes,The Valuation of Option Contracts and a Test of Market Efficiency, Journal of Finance, Black, F.

and M. Scholes,The Effects of Dividend Yield and Dividend Policy on Common Stock Prices and Returns, Journal of Financial Economics, v1, The second, relative valuation, estimates the value of an asset by looking at the pricing of 'comparable' assets relative to a common variable like earnings, cashflows, book value or sales.

The third, contingent claim valuation, uses option pricing models to measure the value of assets that share option characteristics. The following outline is provided as an overview of and topical guide to finance. Finance – addresses the ways in which individuals and organizations raise and allocate monetary resources over time, taking into account the risks entailed in their projects.

ACTUARIAL METHODS AND ASSUMPTIONS USED IN THE VALUATION OF RETIREMENT BENEFITS IN THE EU AND OTHER EUROPEAN COUNTRIES 1 INTRODUCTION This guide is designed to provide the reader with an overview of the work of actuaries involved in retirement benefits in the member states of the European Union (EU) and associated Size: 2MB.

"A Universal Framework for Pricing Financial and Insurance Risks," ASTIN Bulletin, Cambridge University Press, vol. 32(2), pagesNovember. Grosen, Anders & Lochte Jorgensen, Peter, " Fair valuation of life insurance liabilities: The impact of interest rate guarantees, surrender options, and bonus policies," Insurance.

In his book American-Style Derivatives: Valuation and Computation, Jerome Detemple presents the subject areas of financial engineering and investment finance with "an extensive treatment of the theoretical and computational aspects of derivative securities pricing" (p.

"Pricing equity-linked life insurance contracts with minimum interest rate guarantee in partial equilibrium framework," German Risk and Insurance Review (GRIR), University of Cologne, Department of Risk Management and Insurance, vol.

4(2), pages An Introduction to Computational Finance. This note covers the following topics: The First Option Trade, The Black-Scholes Equation, The Risk Neutral World, Monte Carlo Methods, The Binomial Model, Derivative Contracts on non-traded Assets and Real Options, Discrete Hedging, Derivative Contracts on non-traded Assets and Real Options, Discrete Hedging, Jump Diffusion, Regime.

In this course, Prof. James Forgan, PhD, summarizes the first 9 chapters from the Valuation and Risk Models book so you can learn or review all of the important concepts for your FRM part 1 exam. James Forjan has taught college-level business classes for over 25 years/5(13).

Fair pricing of embedded options in life insurance contracts is usually conducted by using risk-neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this paper, we extend the risk-neutral valuation concept with a risk measurement Size: KB.

Its unified treatment of derivative security applications to both risk management and speculative trading separates this book from others. Presenting an integrated explanation of speculative trading and risk management from the practitioner's point of view, Risk Management, Speculation, and Derivative Securities is the only standard text on financial risk management.

PRICING INSURANCE POLICIES: THE INTERNAL RATE OF RETURN MODEL Shoiom Feidbium (May ) Financial models, which consider the time value of money, surplus commitments, and investment income, are increasingly being used in. Learning how to value a business is the process of calculating what a business is worth and could potentially sell for.

One common method used to value small businesses is based on seller’s discretionary earnings (SDE). This method can be used to value a business for sale as well as raising capital.

To make sure. In this paper we consider reserving and pricing methodologies for a pensions-type contract with a simple form of guaranteed annuity option. We consider only unit-linked contracts, but our methodologies and, to some extent, our numerical results Cited by: