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Condidering Surrender and Limiting the Maximum Rate of Return in Pricing Equity Index Annuities

Author: LiYueFei
Tutor: ChenXun
School: Chongqing University
Course: Technology Economics and Management
Keywords: Equity Index Annuities Mortality rate Option Pricing Esscher transform Surrender
CLC: F224
Type: Master's thesis
Year: 2011
Downloads: 60
Quote: 0
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Abstract

Currently, over 60 years of age or older population has reached 600 million, more than 60 countries in the elderly population reaches or exceeds 10% of the total population, into the ranks of aging society. Population aging rapidly, causing the United Nations and the governments of the world's attention and concern. China's current aging population has more than 160 million, and the annual rate of increase of nearly 8 million. Experts predict that by 2050, China's aging population will reach one-third of the total population. The rapid increase in the elderly population, especially the elderly over 80 years old and disabled elderly annual growth rate of 1,000,000, the lives of the elderly care, rehabilitation care, health care, spiritual and cultural needs of increasingly prominent, pension problems have become more grim. Given the seriousness of pension issues, the development of pension insurance products is imperative. Traditional insurance products have a common defect, they will yield the insured fixed. If the future holder of rising yields will lose a lot of revenue product, if the product yields fell future insurance companies will face the risk of large cash outflows, in order to overcome this deficiency, equity indexed annuities emerged. Equity index annuity is a deferred annuity products, equity indexed annuities to overcome the shortcomings of traditional annuities, allow the holder to enjoy when the stock index rose capital gains, while the decline in the stock price index, providing a minimum guaranteed rate of return. In this paper, mainly from two aspects of equity index annuity pricing for improvement. One aspect of the insurance products, surrender could happen, but the likelihood is relatively large. While the previous equity indexed annuities without surrender of factors will be taken into account, which makes equity indexed annuities resulting low prices, there is no risk to the insurance company will surrender losses caused taken into account, so the price is not reached reasonable. The other is based on improving the attractiveness of equity index annuities equity index annuity for purposes of pricing. Equity indexed annuities used here limits the maximum rate of return to lower equity index annuity contract price makes more people can participate in the equity index annuity products. Equity index annuity surrenders caused two main factors. The first factor is the death of the insured that the risk of death. Previous equity index annuity pricing either did not consider the risk of death, or to be considered as fixed, the risk of death in this article will be considered as random, with a mortality rate to represent. In this section and in the past there is an equity index annuity pricing relatively large difference is the use of equity indexed annuities have a minimum guaranteed rate of return of properties, the equity index annuity pricing and option pricing link, and then use to get the equity option pricing index annuity pricing. The second factor is that the insured voluntarily surrender. Mainly because of the voluntary surrender insured policyholders of insurance products that will be held to maturity opportunity cost is too high, for the rational policyholder, he would give insurance products and invest in higher yielding other financial products, However, the insurance company would like to pay a certain policyholders liquidated damages. In this paper, this section assumes that if the insured surrenders, he will receive a refund of their premiums to invest in the stock market. Equity index annuity contracts at reduced prices, mainly by setting a maximum rate of return, narrowing the insured income space. Based on the above considerations resulting equity index annuity contract price is more scientific and reasonable, to make equity indexed annuities better development.

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