Investment Guarantees: The New Science of Modeling and Risk Management for Equity-Linked Life Insurance
The object of life insurance is to provide financial security to policyholders and their families. But insurance markets around the world are changing, and policyholders want to enjoy the benefits of equity investments in conjunction with mortality protection. This idea has led to the development of equity-linked life insurance, and has probably left you searching for better ways to model these innovative investment guarantees as well as measure the risk associated with them.Whether you’re involved with the product design, marketing, pricing and valuation, or risk management of equity-linked insurance, this book has something for you. Investment Guarantees: Modeling and Risk Management for Equity-Linked Life Insurance is a comprehensive guide that combines the econometric analysis of these investment models with their applications in pricing and risk management.Designed with all equity-linked life insurance practitioners in mind, you’ll find both approaches to risk management of equity-linked insurance–the "actuarial" approach and the dynamic hedging approach–presented, discussed, and extensively illustrated with examples. Investment Guarantees opens with a discussion of various models, moves through modeling techniques, and addresses risk management in a straightforward, accessible manner. This unique resource will:Introduce the various types of investment guarantees commonly used in equity-linked insurance, including guaranteed death and living benefitsExplore contracts which offer investment guarantees as part of the benefit package–variable annuities, segregated fund contracts, unit-linked contracts, equity-indexed annuities, and guaranteed annuity optionsDiscuss stochastic models commonly used for equity returns, including ARCH and GARCH models, and regime switching modelsIllustrate parameter estimation using both Maximum Likelihood Estimation (MLE) and Markov Chain Monte Carlo Method (MCMC)–a Bayesian approachExplain how to model investment guarantees using the "actuarial" approach and the dynamic hedging approach to risk managementDescribe stochastic emerging cost modelingExamine the sources of forecast uncertaintyInvestment Guarantees carefully pulls together all of the most recent models and methods that are useful in managing the risk associated with equity-linked insurance. Filled with professional insights and proven techniques, this book is a valuable one-stop reference that will allow you to better understand the theory and practice behind modeling and risk management for equity-linked life insurance.