gender-specific pricing and hedging unit-linked life ... · [email protected] abstract...

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Creativity, Innovation and Management Abstracts of the 10th International Conference Sousse, Tunisia, 25–28 November 2009 GENDER-SPECIFIC PRICING AND HEDGING UNIT-LINKED LIFE INSURANCE CONTRACTS WITH GUARANTEED MINIMUM LIFE BENEFIT Sana Ben Salah, UR: Quantitative Finance, IHEC-University of Sousse [email protected] Pr. Lotfi Belkacem, UR: Quantitative Finance, IHEC-University of Sousse [email protected] ABSTRACT This paper deals with gender-specific pricing equity-linked life insurance contracts. In particular, quantile hedging technique is used to find the optimal price and hedge of an equity-linked life insurance contract with payoff conditioned to the client’s survival to the contract’s maturity. Then, within this framework, we compare the performance of the three survival models developed by Gompertz (1825), Makeham (1860) and Lee-Carter (1992). The pricing of equity-linked life insurance contracts with guaranteed minimum living benefit is performed in a complete market. Using the CaC 40 financial index and mortality data for males and females in France, we analyze and highlight the implications of the three mortality models on the management of financial and insurance risks of equity-linked life insurance contracts. Keywords: Equity-linked life insurance contracts, quantile hedging, mortality models, default risk, longevity risk. 163

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Creativity, Innovation and ManagementAbstracts of the 10th International ConferenceSousse, Tunisia, 25–28 November2009

GENDER-SPECIFIC PRICING AND HEDGING UNIT-LINKED LIFE INSURANCE CONTRACTS WITH GUARANTEED MINIMUM LIFE

BENEFIT

Sana Ben Salah, UR: Quantitative Finance, IHEC-University of Sousse

[email protected]

Pr. Lotfi Belkacem, UR: Quantitative Finance, IHEC-University of Sousse

[email protected]

ABSTRACT

This paper deals with gender-specific pricing equity-linked life insurance contracts. In particular, quantile hedging technique is used to find the optimal price and hedge of an equity-linked life insurance contract with payoff conditioned to the client’s survival to the contract’s maturity. Then, within this framework, we compare the performance of the three survival models developed by Gompertz (1825), Makeham (1860) and Lee-Carter (1992). The pricing of equity-linked life insurance contracts with guaranteed minimum living benefit is performed in a complete market. Using the CaC 40 financial index and mortality data for males and females in France, we analyze and highlight the implications of the three mortality models on the management of financial and insurance risks of equity-linked life insurance contracts.

Keywords: Equity-linked life insurance contracts, quantile hedging, mortality models, default risk, longevity risk.

163