Lapse rate modeling: a rational expectation approach

Giovanni, Domenico De

doi:10.1080/03461230802550649

Cited by 51 publications

(15 citation statements)

References 19 publications

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“…This condition is based on a discrete approximation of the derivative of v with respect to s. For large values of s, surrender will only happen for exogenous reasons. This boundary does not require the operator splitting method suggested by DeGiovanni [20], as there is no interaction…”

Section: Numerical Methodologymentioning

confidence: 99%

“…In a similar context, DeGiovanni [20] derives boundary conditions that are adapted to fit the problem under consideration. The boundary condition for maturity is already given by Φ, i.e.…”

Section: Numerical Methodologymentioning

confidence: 99%

“…Contract valuation in this spirit can be found for example in Albizzati and Geman [1], DeGiovanni [20] and Li and Szimayer [26].…”

mentioning

confidence: 99%

“…First, we formulate a financial market augmented for mortality risk. In this market we consider an equity-linked life insurance contract with a surrender option, following Li and Szimayer [26], see also Stanton [29], Dai et al [13], and DeGiovanni [20]. As the second step we extend the setup and add as a new feature the secondary market.…”

mentioning

confidence: 99%

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The Effect of Secondary Markets on Equity-Linked Life Insurance with Surrender Guarantees

Hilpert

Li²,

Szimayer

2012

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe study the effect of secondary markets on equity-linked life insurance contracts with surrender guarantees. The policyholders are assumed to be boundedly rational in giving up their contracts, and a proportion of policyholders will access the secondary markets instead of surrendering the contracts to the insurance company. We formulate the valuation problems from both the insurance company's and the policyholders' perspectives and characterize the contract values by deriving the respective pricing PDEs. Comparative statics are derived indicating the effect of the level of the policyholder's rationality and secondary market characteristics such as accessibility and competition on the contract values. The pricing PDEs are solved numerically via the Crank-Nicolson scheme to study the implication of the inclusion of a secondary market. We show that a secondary market generally increases the risk borne by the insurance company and the policyholders profit from the secondary market only when the secondary market is sufficiently competitive. Furthermore, we derive the necessary condition for the existence of a fair contract in this context and study the effect of the secondary market on fair contract design.

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Section: Numerical Methodologymentioning

confidence: 99%

“…In a similar context, DeGiovanni [20] derives boundary conditions that are adapted to fit the problem under consideration. The boundary condition for maturity is already given by Φ, i.e.…”

Section: Numerical Methodologymentioning

confidence: 99%

“…Contract valuation in this spirit can be found for example in Albizzati and Geman [1], DeGiovanni [20] and Li and Szimayer [26].…”

mentioning

confidence: 99%

mentioning

confidence: 99%

See 2 more Smart Citations

The Effect of Secondary Markets on Equity-Linked Life Insurance with Surrender Guarantees

Hilpert

Li²,

Szimayer

2012

SSRN Journal

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“…The upper bound represents the maximal surrender rate. Recently, similar idea was implemented by Giovanni [11] to model the policyholders' rationality in contract surrender.…”

Section: Introductionmentioning

confidence: 99%

The Effect of Policyholders’ Rationality on Unit-Linked Life Insurance Contracts with Surrender Guarantees

Li¹,

Szimayer

2010

SSRN Journal

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Terms of use: Documents in AbstractWe study the valuation of unit-linked life insurance contracts with surrender guarantees. Instead of solving an optimal stopping problem, we propose a more realistic approach accounting for policyholders' rationality in exercising their surrender option.The valuation is conducted at the portfolio level by assuming the surrender intensity to be bounded from below and from above. The lower bound corresponds to purely exogenous surrender and the upper bound represents the limited rationality of the policyholders. The valuation problem is formulated by a valuation PDE and solved with the finite difference method. We show that the rationality of the policyholders has a significant effect on average contract value and hence on the fair contract design.We also present the separating boundary between purely exogenous surrender and endogenous surrender. This provides implications on the predicted surrender activity of the policyholders.

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Solvenzkapital für FLV unter Berücksichtigung von dynamischem Storno

Kochanski

2010

ZVersWiss

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Zusammenfassung Der vorliegende Beitrag zeigt ein Verfahren zur Modellierung dynamischen Stornos im Rahmen eines partiellen internen Modells zur Bestimmung des Solvenzkapitals auf. Dabei wird das Stornoverhalten der Versicherungsnehmer von der Entwicklung des Kapitalmarktes und somit des Fondswertes einer fondsgebundenen Lebensversicherung beeinflusst. Das partielle interne Modell ermöglicht es dem Versicherungsunternehmen stochastische Bewertungen durchzuführen, ohne dabei auf die Vorteile der Standardformel zur Bestimmung des Solvenzkapitalbedarfs zu verzichten. Es konnte nachgewiesen werden, dass die Berücksichtigung dynamischer Stornorisiken unter bestimmten Annahmen erhebliche Auswirkungen auf die Höhe des Solvenzkapitalbedarfs haben kann. Eine genaue Untersuchung des tatsäch-lichen Stornoverhaltens der Versicherungsnehmer erscheint vor dem Hintergrund dieser Ergebnisse notwendig.

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Lapse rate modeling: a rational expectation approach

Cited by 51 publications

References 19 publications

The Effect of Secondary Markets on Equity-Linked Life Insurance with Surrender Guarantees

The Effect of Secondary Markets on Equity-Linked Life Insurance with Surrender Guarantees

The Effect of Policyholders’ Rationality on Unit-Linked Life Insurance Contracts with Surrender Guarantees

Solvenzkapital für FLV unter Berücksichtigung von dynamischem Storno

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