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Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts
Dissertation (MSc)--University of Pretoria, 2014.
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| Format: | Thesis |
| Language: | English |
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University of Pretoria
2015
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| _version_ | 1867613581113032704 |
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| access_status_str | Open Access |
| author2 | Mare, Eben |
| author_browse | Mare, Eben |
| author_facet | Mare, Eben |
| collection | Thesis |
| dc_rights_str_mv | © 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. |
| description | Dissertation (MSc)--University of Pretoria, 2014. |
| format | Thesis |
| id | oai:repository.up.ac.za:2263/43230 |
| institution | University of Pretoria (South Africa) |
| language | English |
| last_indexed | 2026-06-10T12:38:24.974Z |
| license_str | Other — see source repository |
| provenance_str_mv | Harvested via OAI-PMH from UPSpace — University of Pretoria Institutional Repository |
| publishDate | 2015 |
| publishDateRange | 2015 |
| publishDateSort | 2015 |
| publisher | University of Pretoria |
| publisherStr | University of Pretoria |
| record_format | dspace |
| source_str | UPSpace — University of Pretoria Institutional Repository |
| spelling | oai:repository.up.ac.za:2263/43230 Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts Mare, Eben Rice, Robert Bruce UCTD Dissertation (MSc)--University of Pretoria, 2014. This dissertation tackles the current life insurance industry challenge to price and hedge minimum rate of return guarantees (MRRG) embedded in recurring-contribution life insurance contracts in a practical manner. The key contribution to the literature is to outline a practical approach to quantify and project the impact of dynamic hedging strategies for such options. MRRGs are typically very long-dated and as a result the validity of using typical financial economics options pricing models under incomplete market conditions remains a debate. However, life insurers need robust, practical solutions to assist them to manage market risk exposures for day-to-day solvency and income statement management. Literature specific to the topic of MRRG pricing and hedging over recurring-contribution life insurance products is sparse but Schrager and Pelssers’ significant contribution (Schrager and Pelsser 2004) provided a basis on which this dissertation was built. Schrager and Pelsser show these options to be analogous to Asian options written over a stochastically-weighted average of the underlying unit fund price. This dissertation demonstrates the effects of stochastic interest rates on MRRGs increase with maturity, as shown by Schrager and Pelsser. Consequentially, users should be aware of the effect and limitations of their choice of interest rate model when pricing MRRGs. Sensitivities for the various maturity terms of MRRG benefits are shown and provide readers with insight into the factors driving the dynamics of such options. A simple dynamic hedging program is outlined and projected under real-world evolutions on a daily basis, thus allowing the effectiveness of the hedging program to be tested. lk2014 Mathematics and Applied Mathematics MSc Unrestricted 2015-01-19T12:13:12Z 2015-01-19T12:13:12Z 2014/12/12 2014 Dissertation Rice, RB 2014, Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts, MSc Dissertation, University of Pretoria, Pretoria, viewed yymmdd <http://hdl.handle.net/2263/43230> M14/9/213 http://hdl.handle.net/2263/43230 en © 2014 University of Pretoria. All rights reserved. The copyright in this work vests in the University of Pretoria. No part of this work may be reproduced or transmitted in any form or by any means, without the prior written permission of the University of Pretoria. application/pdf University of Pretoria |
| spellingShingle | UCTD Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts |
| title | Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts |
| title_full | Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts |
| title_fullStr | Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts |
| title_full_unstemmed | Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts |
| title_short | Outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring - contribution life insurance contracts |
| title_sort | outlining a practical approach to price and hedge minimum rate of return guarantees embedded in recurring contribution life insurance contracts |
| topic | UCTD |
| url | http://hdl.handle.net/2263/43230 |