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Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts

EconWPA reference ewp-fin/9607006, RePEc reference RePEc:wpa:wuwpfi:9607006

Paper:ewp-fin/9607006
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ABSTRACT ONLY  ABSTRACT ONLY  ABSTRACT ONLY  ABSTRACT ONLY  ABSTRACT ONLY
Date: Sat, 13 Jul 96 12:34:53 CDT

Title: Uniqueness of the Fair Premium for Equity-Linked Life Insurance Contracts
Author: J. Aase Nielsen (Aarhus University) and Klaus Sandmann (University of Bonn)
Contact:
Phone:
Address: Department of Statistics University of Bonn Adenauerallee 24-26
JEL: G13
URL: http://addi.or.uni-bonn.de:1048/papers/bonnsfb327.html
EWPA-references:
Keywords: Asian option, forward risk adjusted measure, Monte Carlo simulations, life insurance, stochastic interest rates
Report-no: bonnsfb327

Abstract:

An equity-linked life insurance contract combines an endowment life insurance and an investment strategy with a minimum guarantee. The benefit of this contract is determined by the guaranteed amount plus a bonus equal to a call on the portfolio. This bonus is similar to an Asian option. We analyze the relationship between the periodic insurance premium and its proportional share invested into the portfolio. For a general model of the financial risks we show the existence and uniqueness of an insurance premium. Furthermore the premium is strictly increasing and convex as a function of the share invested. An earlier version of this paper was presented under the title Security Linked Life Policies

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EconWPA began as a conversation between Bob Parks and Larry Blume on January 28, 1993. I located Paul Ginsparg's archive (then xxx.lanl.gov) and he graciously installed his software on a Sun Sparc system which was supporting the department of economics email and computation. EconWPA began accepting papers July 1, 1993 and had ftp, email, gopher and web interfaces. The web interface for submissions was engineered into existence in July 1995. A complete and catastrophic machine failure in 1999 caused the loss of EconWPA's email new paper announcment service at which time there were over 15,000 subscriptions with over 8,000 unique email addresses.

In 2005, Arts and Sciences commandeered the computing services that I had provided to the Department of Economics since 1987. Some might say that the department was sold out, others would (erroneously) claim that centralization is efficient, and still others would claim that I have few marketing skills.

I was told that I could keep operating EconWPA (as well as many other services including rfe.wustl.edu, barnett.wustl.edu, and three RePEc servers) but I would receive no support (hardware, software, or anthing else) and (as had been the case) no compensation. At that point, given the apparent low valuation of my activities by the department, and university, it made no sense for me to continue operating EconWPA or other services.

Thanks to all who have supported EconWPA in the past.

A Chinese curse states May you live in intersting times. I have. Bob Parks - Jan 2006