Value the following options embedded in insurance and annuity contracts, using the Black-Scholes model: guaranteed minimum death benefit, and guaranteed minimum accumulation/maturity benefit.
Free SOA Exam ALTAM (Advanced Long-Term Actuarial Mathematics) lesson in Embedded Options in Life Insurance and Annuity Products. 34 min read, ~5,159 words.
GMMB and GMDB are put options on the policyholder's fund struck at the guarantee, weighted by the relevant survival or death probability. Risk-neutral pricing: fund drifts at under (where is the continuous M&E and rider charge deducted from the fund), but payoffs discount at. GMMB value:. GMDB value: sum of...
Read the full lesson, free →
Worked examples and practice. Free with a free account, no card.
What this lesson covers
- Content
- Example 1
- Example 2
- Example 3
- Example 4
- Example 5
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- 7b
Browse all free Exam ALTAM lessons or jump into free Exam ALTAM practice questions.