Life insurance valuation using exotic options

Authors

DOI:

https://doi.org/10.46661/revmetodoscuanteconempresa.4500

Keywords:

exotic option, life insurance, digital option, exercise probability

Abstract

This paper presents the analysis and valuation of an individual, temporary, and leveled-prime life insurance. It starting point is an analogy between contract rules and a financial exotic option. In particular, a cash or nothing option. Several cases are presented from a person with different age and gender, and sensitivity to different probability distributions are tested using Monte Carlo simulation. All cases are adjusted to Argentinean recent data in order to estimate exercise prices, main variable to estimate the contract value. Prime market values used on this work are more than double than the theoretical value found on the exotic option while comparing them to identical contract conditions such as insured amount, time frame and demographic conditions of the individual.

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Published

2021-12-01

How to Cite

Pesce, G., Milanesi, G., El Alabi, E., & Menna, J. (2021). Life insurance valuation using exotic options. Journal of Quantitative Methods for Economics and Business Administration, 32, 214–240. https://doi.org/10.46661/revmetodoscuanteconempresa.4500

Issue

Vol. 32 (2021)

Section

Articles

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