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Regression-based algorithms for life insurance contracts with surrender guarantees |
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| Authors: | Anna Rita Bacinello Enrico Biffis Pietro Millossovich |
| Institution: | 1. Department of Applied Mathematics , University of Trieste , Piazzale Europa 1, 34127 Trieste, Italy bacinel@units.it;3. Imperial College Business School , Imperial College London , South Kensington Campus, London SW7 2AZ, UK;4. Department of Applied Mathematics , University of Trieste , Piazzale Europa 1, 34127 Trieste, Italy |
| Abstract: | We present a general framework for pricing life insurance contracts embedding a surrender option. The model allows for several sources of risk, such as uncertainty in mortality, interest rates and other financial factors. We describe and compare two numerical schemes based on the Least Squares Monte Carlo method, emphasizing underlying modeling assumptions and computational issues. |
| Keywords: | Insurance contracts Surrender option Stochastic mortality American contingent claims Least Squares Monte Carlo method |