Should I stay or should I go? Multiple option valuation based on LSMC for life insurance contracts
Type
working paper
Date Issued
2020
Author(s)
Abstract (De)
Life insurance contracts typically possess various embedded options. We focus on common options with early exercise features such as paid-up options, resumption options, surrender options and combinations among them. Contrary to the existing literature, showing these options value little under a deterministic-term structure, we demonstrate the situation changes dramatically whenever stochastic interest rates are introduced. With two stochastic sources (asset and interest rates), deriving optimal stopping strategies for multiple options becomes complex. Therefore, in this paper, an extension of the least squares Monte Carlo method (LSMC) is developed to allow valuation of these multi-feature options.
Language
English
HSG Classification
contribution to scientific community
Subject(s)
Division(s)
Eprints ID
255099
File(s)![Thumbnail Image]()
Name
OptionValue.pdf
Size
395.56 KB
Format
Adobe PDF
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