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Article: On valuing participating life insurance contracts with conditional heteroscedasticity

TitleOn valuing participating life insurance contracts with conditional heteroscedasticity
Authors
KeywordsAPGARCH model
Conditional Esscher transforms
Conditional heteroscedasticity
Default option
Leverage effect
Memoryness
Participating life insurance policies
Issue Date2007
PublisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=1387-2834
Citation
Asia-Pacific Financial Markets, 2007, v. 14 n. 3, p. 255-275 How to Cite?
AbstractIn this paper, we consider a novel approach for the fair valuation of a participating life insurance policy when the dynamics of the reference portfolio underlying the policy are governed by an Asymmetric Power GARCH (APGARCH) model with innovations having a general parametric distribution. The APGARCH model provides a flexible way to incorporate the effect of conditional heteroscedasticity or time-varying conditional volatility and nests a number of important symmetric or asymmetric ARCH-type models in the literature. It also provides a flexible way to capture both the memory effect of the conditional volatility and the asymmetric effects of past positive and negative returns on the current conditional volatility, called the leverage effect. The key valuation tool here is the conditional Esscher transform of Bühlmann et al. (1996, 1998). The conditional Esscher transform provides a convenient and flexible way for the fair valuation under different specifications of the conditional heteroscedastic models. We illustrate the practical implementation of the model using the S&P 500 index as a proxy for the reference portfolio. We also conduct sensitivity analysis of the fair value of the policy with respect to the parameters in the APGARCH model to document the impacts of different conditional volatility models nested in the APGARCH model and the leverage effect on the fair value. The results of the analysis reveal that the memory effect of the conditional volatility has more significant impact on the fair value of the policy than the leverage effect. © 2008 Springer Science+Business Media, LLC.
Persistent Identifierhttp://hdl.handle.net/10722/82753
ISSN
2015 SCImago Journal Rankings: 0.190
References

 

DC FieldValueLanguage
dc.contributor.authorSiu, TKen_HK
dc.contributor.authorLau, JWen_HK
dc.contributor.authorYang, Hen_HK
dc.date.accessioned2010-09-06T08:33:01Z-
dc.date.available2010-09-06T08:33:01Z-
dc.date.issued2007en_HK
dc.identifier.citationAsia-Pacific Financial Markets, 2007, v. 14 n. 3, p. 255-275en_HK
dc.identifier.issn1387-2834en_HK
dc.identifier.urihttp://hdl.handle.net/10722/82753-
dc.description.abstractIn this paper, we consider a novel approach for the fair valuation of a participating life insurance policy when the dynamics of the reference portfolio underlying the policy are governed by an Asymmetric Power GARCH (APGARCH) model with innovations having a general parametric distribution. The APGARCH model provides a flexible way to incorporate the effect of conditional heteroscedasticity or time-varying conditional volatility and nests a number of important symmetric or asymmetric ARCH-type models in the literature. It also provides a flexible way to capture both the memory effect of the conditional volatility and the asymmetric effects of past positive and negative returns on the current conditional volatility, called the leverage effect. The key valuation tool here is the conditional Esscher transform of Bühlmann et al. (1996, 1998). The conditional Esscher transform provides a convenient and flexible way for the fair valuation under different specifications of the conditional heteroscedastic models. We illustrate the practical implementation of the model using the S&P 500 index as a proxy for the reference portfolio. We also conduct sensitivity analysis of the fair value of the policy with respect to the parameters in the APGARCH model to document the impacts of different conditional volatility models nested in the APGARCH model and the leverage effect on the fair value. The results of the analysis reveal that the memory effect of the conditional volatility has more significant impact on the fair value of the policy than the leverage effect. © 2008 Springer Science+Business Media, LLC.en_HK
dc.languageengen_HK
dc.publisherSpringer New York LLC. The Journal's web site is located at http://springerlink.metapress.com/openurl.asp?genre=journal&issn=1387-2834en_HK
dc.relation.ispartofAsia-Pacific Financial Marketsen_HK
dc.subjectAPGARCH modelen_HK
dc.subjectConditional Esscher transformsen_HK
dc.subjectConditional heteroscedasticityen_HK
dc.subjectDefault optionen_HK
dc.subjectLeverage effecten_HK
dc.subjectMemorynessen_HK
dc.subjectParticipating life insurance policiesen_HK
dc.titleOn valuing participating life insurance contracts with conditional heteroscedasticityen_HK
dc.typeArticleen_HK
dc.identifier.emailYang, H: hlyang@hku.hken_HK
dc.identifier.authorityYang, H=rp00826en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1007/s10690-007-9062-9en_HK
dc.identifier.scopuseid_2-s2.0-41149088113en_HK
dc.identifier.hkuros142922en_HK
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-41149088113&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume14en_HK
dc.identifier.issue3en_HK
dc.identifier.spage255en_HK
dc.identifier.epage275en_HK
dc.publisher.placeUnited Statesen_HK
dc.identifier.scopusauthoridSiu, TK=8655758200en_HK
dc.identifier.scopusauthoridLau, JW=16687049100en_HK
dc.identifier.scopusauthoridYang, H=7406559537en_HK
dc.identifier.citeulike3647091-

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