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. 33 min read, ~4,942 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 annualised M&E and rider charge deducted continuously from the fund. GMMB value:. GMDB value: sum of put values across...
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What this lesson covers
- Content
- Example 1
- Example 2
- Example 3
- Example 4
- Example 5
- Common Mistakes
- Key Takeaways
- Exam Shortcuts
Learning objectives
- 7b
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