Fast simulation of equity-linked life insurance contracts with a surrender option
Abstract
In this paper, we consider equity-linked life insurance contracts that give their holder the possibility to surrender their policy before maturity. Such contracts can be valued using simulation methods proposed for the pricing of American options, but the mortality risk must also be taken into account when pricing such contracts. Here, we use the least-squares Monte Carlo approach of Longstaff and Schwartz coupled with quasi-Monte Carlo sampling and a control variate in order to construct efficient estimators for the value of such contracts. We also show how to incorporate the mortality risk into these pricing algorithms without explicitly simulating it.
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- Fast simulation of equity-linked life insurance contracts with a surrender option
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Published In
December 2008
3189 pages
ISBN:9781424427086
- Editors:
- Scott Mason,
- Ray Hill,
- Lars Mönch,
- Oliver Rose,
- General Chair:
- Thomas Jefferson,
- Program Chairs:
- John W. Fowler,
- Ricki G. Ingalls
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- IIE: Institute of Industrial Engineers
- INFORMS-SIM: Institute for Operations Research and the Management Sciences: Simulation Society
- ASA: American Statistical Association
- IEEE/SMC: Institute of Electrical and Electronics Engineers: Systems, Man, and Cybernetics Society
- SIGSIM: ACM Special Interest Group on Simulation and Modeling
- NIST: National Institute of Standards and Technology
- (SCS): The Society for Modeling and Simulation International
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Winter Simulation Conference
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Published: 07 December 2008
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WSC '08 Paper Acceptance Rate 249 of 304 submissions, 82%;
Overall Acceptance Rate 3,413 of 5,075 submissions, 67%
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