Valuation of life insurance surrender and exchange options

The conversion option in life insurance

“…However, most literature on embedded options in life and pension insurance has so far concentrated on the bonus payment option with a number of different models that have been developed, in order to cover different elements of the life and pension insurance contract (Nordahl, 2008).…”

“…The paper deals with the simplest form of intervention, which is optimal stopping, so that the valuation of intervention options is based on optimal intervention strategies, giving rise to arbitrage free values. Nordahl (2008) introduced an exchange option that is available in Norway. The paper compares the value of the exchange option with the value of the corresponding American surrender option and with combinations of the two options.…”

On the Risk-Neutral Valuation of Life Insurance Contracts with Numerical Methods in View

“…The difference in value of the two contracts is the marginal value of the option. For example, the generic model can be used in this way to analyze paid-up and resumption options within participating life insurance contracts such as in Gatzert and Schmeiser (2008) or exchange options such as in Nordahl (2008). Alternatively, the value of a certain embedded option may be determined by isolating the cash-fl ows corresponding to the considered guarantee ( see Bauer, Kiesel, Kling and Ruß (2006) ).…”

A Termination Rule for Pension Guarantee Funds

“…By determining an optimal critical funding ratio, one solves an optimal stopping problem that is similar to the optimal exercise of options in insurance contracts studied by Grosen and Jørgensen (), Bacinello (), Bauer et al. (), Nordahl (), and Schmeiser and Wagner ().…”