Pricing funeral insurance contracts using option pricing techniques and interest rate models

  • Jim Bemelen Jim Bemelen

The aim of this paper is to develop an analytical method which is able to price individual insurance contracts. The introduction of Solvency II entailed that insurance companies had to determine the market value of their liabilities. This opened doors for researchers in the section of market consistent valuation. In this paper we will determine the value of a funeral insurance contract with cumulative profit sharing. We will do this with the help of interest rate models and several option pricing techniques. We will determine an upper bound and a lower bound for the price of the insurance contract. Through a Monte Carlo simulation we will show that the bounds give an accurate approximation of the price.

Netspar, Network for Studies on Pensions, Aging and Retirement, is a thinktank and knowledge network. Netspar is dedicated to promoting a wider understanding of the economic and social implications of pensions, aging and retirement in the Netherlands and Europe.


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