Using options to price maturity guarantees

Abstract

The discussion on Maturity Guarantees, as applied to unit linked life assurance policies, has followed two quite distinct paths—the conventional or mainstream approach, as exemplified by Benjamin (1976) and endorsed by the Maturity Guarantees Working Party (MGWP 1980) on the one hand, and those who seek to reduce the risks associated with maturity guarantees by using an immunization strategy on the other (Brennan & Schwartz, 1976).

Reserving, Pricing and Hedging for Policies with Guaranteed Annuity Options. Abstract of the Discussion held by the Institute of Actuaries

“…An extensive list of references on this topic is contained in Merton (1977); amongst these we mention the contribution of Brennan & Schwartz (1976) and Boyle & Schwartz (1977), who analyse the problem of an insurance company's guarantee of a minimum cash value for equity-linked life insurance policies. It is also worth noting that, in 1986, a paper appeared in the Journal of the Institute of Actuaries, exposing the option pricing approach to valuing such maturity guarantees (Beenstock & Brasse, 1986).…”

Reserving, Pricing and Hedging for Policies with Guaranteed Annuity Options. Abstract of the Discussion held by the Faculty of Actuaries

“…Amongst these we mention the contribution of Brennan & Schwartz (1976) and Boyle & Schwartz (1977), who analyse the problem of an insurance company's guarantee of a minimum cash value for equity-linked life insurance policies. It is also worth noting that, in 1986, a paper appeared in the Journal of the Institute of Actuaries, exposing the option pricing approach to valuing such maturity guarantees (Beenstock & Brasse, 1986).…”

How sensitive is the pricing of lookback and interest rate guarantees when changing the modelling assumptions?

“…Finally, specific research into http://dx.doi.org/10.1016/j.insmatheco.2015.08.004 0167-6687/© 2015 Elsevier B.V. All rights reserved. the sensitivity of the option price for products with guarantees were initially conducted by Beenstock and Brasse (1986). Iseger and Oldenkamp concentrated their work on the computation of the option Greeks, given name of the price derivatives that indicate the sensitivity of the option price, for products with investment guarantees (cf.…”