Evaluation of the surrender and the minimum guaranteed rate of return options in life insurance products

Pimentel, Pedro; Pereira, Ricardo

http://hdl.handle.net/10400.3/4977

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Authors

Pimentel, Pedro

Pereira, Ricardo

Abstract(s)

This paper aims to value a Guaranteed Investment Contract (GIC), offered by insurance companies, with a minimum rate of return and an option to surrender the contract (surrender option) at any time before the maturity date. The valuation framework uses a set of different models to value each one of these two options included on a GIC contract commercialized by a Portuguese financial group. We estimate that the surrender option value is around 1.18 percent of the net premium and that the value for the minimum guaranteed rate of return option varies between 0 an 7 percent, according to the used model.

Keywords

Guaranteed Investment Contracts Insurance Options

URI

http://hdl.handle.net/10400.3/4977

Citation

Pimentel, Pedro; Pereira, Ricardo (2011). Evaluation of the surrender and the minimum guaranteed rate of return options in life insurance products, “Working Paper Series”, nº 2/11, 18 pp.. Ponta Delgada: Universidade dos Açores, CEEAplA-A.