Nadine Gatzert
Title
Prof. Dr.
Last Name
Gatzert
First name
Nadine
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Item type:Publication, Analysis of Participating Life Insurance Contracts: A Unification ApproachFair pricing of embedded options in life insurance contracts is usually conducted by using the appropriate concept of risk-neutral valuation. This concept 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 approach. We accomplish this by first calibrating contract parameters that lead to the same market value using risk-neutral valuation. We then measure the resulting risk assuming that insurers do not follow perfect hedging strategies. As the relevant risk measure, we use lower partial moments, comparing shortfall probability, expected shortfall, and shortfall variance. We show that even when contracts have the same market value, the insurance company's risk can vary widely, a finding that allows us to identify key risk drivers for participating life insurance contracts.Type:journal articleJournal:The Journal of Risk and InsuranceVolume:74Issue:3Scopus© Citations 52 - Some of the metrics are blocked by yourconsent settings
Item type:Publication, Implicit Options in Life Insurance: Valuation and Risk ManagementParticipating life insurance contracts typically contain various types of implicit options. These implicit options can be very valuable and can thus represent a significant risk to insurance companies if they practice insufficient risk management. Options become especially risky through interaction with other options included in the contracts, which makes their evaluation even more complex. This article provides a comprehensive overview and classification of implicit options in participating life insurance contracts and discusses the relevant literature. It points out the potential problems particularly associated with the valuation of rights to early exercise due to policyholder exercise behavior. The risk potential of the interaction of implicit options is illustrated with numerical examples by means of a life insurance contract that includes common implicit options, i.e., a guaranteed interest rate, stochastic annual surplus participation, and paid-up and resumption options. Valuation is conducted using risk-neutral valuation, a concept that implicitly assumes the implementation of risk management measures such as hedging strategies.Type:journal articleJournal:Zeitschrift für die gesamte VersicherungswissenschaftVolume:95Issue:1