This article proposes a bivariate lattice model for evaluating equity-linked policies embedding a surrender option when the underlying equity dynamics is described by a geometric Brownian motion with stochastic interest rate. The main advantage of the model stays in that the original processes for the reference fund and the interest rate are directly discretized by means of lattice approximations, without resorting to any additional transformation. Then, the arising lattices are combined in order to establish a bivariate tree where equity-linked policy premiums are computed by discounting the policy payoff over the lattice branches, and allowing early exercise at each premium payment date to model the surrender decision.

De Angelis, P., Martire, A.L., Russo, E. (2016). A bivariate model for evaluating equity-linked policies with surrender option. SCANDINAVIAN ACTUARIAL JOURNAL(3), 246-261 [10.1080/03461238.2014.924433].

A bivariate model for evaluating equity-linked policies with surrender option

Antonio Luciano Martire;
2016-01-01

Abstract

This article proposes a bivariate lattice model for evaluating equity-linked policies embedding a surrender option when the underlying equity dynamics is described by a geometric Brownian motion with stochastic interest rate. The main advantage of the model stays in that the original processes for the reference fund and the interest rate are directly discretized by means of lattice approximations, without resorting to any additional transformation. Then, the arising lattices are combined in order to establish a bivariate tree where equity-linked policy premiums are computed by discounting the policy payoff over the lattice branches, and allowing early exercise at each premium payment date to model the surrender decision.
De Angelis, P., Martire, A.L., Russo, E. (2016). A bivariate model for evaluating equity-linked policies with surrender option. SCANDINAVIAN ACTUARIAL JOURNAL(3), 246-261 [10.1080/03461238.2014.924433].
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11590/425841
Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 4
  • ???jsp.display-item.citation.isi??? 3
social impact