Pricing the option to surrender in incomplete markets

Andrea Consiglio, Domenico De Giovanni

Risultato della ricerca: Article

9 Citazioni (Scopus)

Abstract

New international accounting standards require insurers to reflect the value of embedded options and guarantees in their products. Pricing techniques based on the Black and Scholes paradigm are often used; however, the hypotheses underneath this model are rarely met. We propose a framework that encompasses the most known sources of incompleteness. We show that the surrender option, joined with a wide range of claims embedded in insurance contracts, can be priced through our tool, and deliver hedging portfolios to mitigate the risk arising from their positions. We provide extensive empirical analysis to highlight the effect of incompleteness on the fair value of the option.
Lingua originaleEnglish
pagine (da-a)935-957
Numero di pagine22
RivistaJournal of Risk and Insurance
Volume77
Stato di pubblicazionePublished - 2010

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Incomplete markets
Pricing
Incompleteness
Empirical analysis
International accounting standards
Hedging
Fair value
Guarantee
Surrender option
Insurance contract
Insurer
Embedded options
Paradigm

All Science Journal Classification (ASJC) codes

  • Accounting
  • Economics and Econometrics
  • Finance

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Pricing the option to surrender in incomplete markets. / Consiglio, Andrea; De Giovanni, Domenico.

In: Journal of Risk and Insurance, Vol. 77, 2010, pag. 935-957.

Risultato della ricerca: Article

Consiglio, Andrea ; De Giovanni, Domenico. / Pricing the option to surrender in incomplete markets. In: Journal of Risk and Insurance. 2010 ; Vol. 77. pagg. 935-957.
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