Valuing Equity-Linked Insurance Products

Thursday, June 14, 2018 - 11:00am - 11:50am
Lind 305
Hailiang Yang (University of Hong Kong)
Motivated by the Guaranteed Minimum Death Benefits in various deferred annuities, we investigate the calculation of
the expected discounted value of a payment at the time of death. The payment depends on the price of a stock at that
time and possibly also on the history of the stock price. If the payment turns out to be the payoff of an option,
we call the contract for the payment a (life) contingent option. Because each time-until-death distribution can be approximated
by a combination of exponential distributions, the analysis is made for the case where the time until death is exponentially
distributed, i.e., under the assumption of a constant force of mortality. The time-until-death random variable is assumed to
be independent of the stock price process which is a geometric Brownian motion, a jump-diffusion or a random walk.
A substantial series of closed-form formulas is obtained, for the contingent call and put options, for lookback
options, and for barrier options. (This talk is based on joint papers with Hans U. Gerber and Elias S. W. Shiu).