Contracts paying a guaranteed minimum rate of return and a fraction of a positive excess rate, which is specified relative to a benchmark portfolio, are closely related to unit-linked life-insurance products and can be considered as alternatives to direct investment in the underlying benchmark....

In this paper, we use the key concept of arbitrage free valuation to close the gap between option pricing and ALM. We derive a continuous-time equivalent of the discrete ALM model and show how, e.g., equity options and swaptions ought to be valued. We demonstrate that normally distributed equity...

A unit-linked insurance contract can be formulated in terms of a guaranteed amount together with a fraction of a positive excess return of a benchmark portfolio. Normally, the excess return is determined annually and accumulated until the maturity of the contract. The accumulation factor which...

Developing a liquid longevity market requires reliable and well-designed financial instruments. An index-based longevity swap and a cap are analyzed in this paper under a tractable stochastic mortality model. The model is calibrated using Australian mortality data and analytical formulas for...

In this paper we analyse how the policyholder surrender behaviour is influenced by changes in various sources of risk impacting a variable annuity (VA) contract embedded with a guaranteed minimum maturity benefit rider that can be surrendered anytime prior to maturity. We model the underlying...

This paper introduces, prices, and analyzes traffic light options. The traffic light option is an innovative structured OTC derivative developed independently by several London-based investment banks to suit the needs of Danish life and pension (Lamp;P) companies, which must comply with the...

Default risk permeates the behavior of corporate bond returns and spreads, credit default swap spreads, estimation of default probabilities, and loss in default. Pertinent to this review are salient empirical findings and implications of default process estimation over 1974 to 2021. Both...

This paper takes a contingent claim approach to the market valuation of equity and liabilities in life insurance companies. A model is presented which explicitly takes into account the facts that the holders of life insurance contracts (LICs) have the first claim on the company's assets whereas...

The paper analyzes one of the most common life insurance products --the so-called participating (or 'with profits') policy. This type of contract stands in contrast to Unit-Linked (UL) products in that interest is credited to the policy periodically according to some mechanism which smoothes...

This paper considers derivatives with payoffs that depend on a stock index and underlying LIBOR rates. A traffic light option pricing formula is derived under lognormality assumptions on the underlying processes. The traffic light option is aimed at the Danish life and pension sector to help...