Synopses & Reviews
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 youre 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, youll find both approaches to risk management of equity-linked insurancethe "actuarial" approach and the dynamic hedging approachpresented, 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 benefits
- Explore contracts which offer investment guarantees as part of the benefit packagevariable annuities, segregated fund contracts, unit-linked contracts, equity-indexed annuities, and guaranteed annuity options
- Discuss stochastic models commonly used for equity returns, including ARCH and GARCH models, and regime switching models
- Illustrate parameter estimation using both Maximum Likelihood Estimation (MLE) and Markov Chain Monte Carlo Method (MCMC)a Bayesian approach
- Explain how to model investment guarantees using the "actuarial" approach and the dynamic hedging approach to risk management
- Describe stochastic emerging cost modeling
- Examine the sources of forecast uncertainty
Investment 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.
Synopsis
readable, Investment Guarantees is an invaluable resource for insurance and financial professionals working with equity-linked insurance and annuity products."
Geoffrey H. Hancock
Principal
Mercer Risk, Finance & Insurance Consulting
Synopsis
Includes bibliographical references (p. 275-278) and index.
Synopsis
Praise for InvestmentGuarantees
"In addition to being a valuable and innovative addition to the literature on risk management of equity-linked insurance, this book provides a uniquely clear demonstration of using different measures in a very practical context. A great way of showing actuaries how to mind their Ps and Qs!"
Boris Brizeli
Principal and Chief Operations Officer
GE Insource Limited
"This is an extremely well written and comprehensive book which will be useful for both practitioners and graduate students. It provides a unique synthesis of techniques and tools in econometrics, financial engineering, and simulation applied to questions of fundamental importance in insurance."
Dr. Andrew Cairns
Reader in Financial and Actuarial Mathematics
Heriot-Watt University
"Investment Guarantees will become the reference book of choice for both actuaries and non-actuaries alike working in the field of guarantees associated with equity-linked products. The book provides an excellent balance between theory and practice in the course of contrasting actuarial modeling and option pricing theory as applied to guarantees on equity-linked products."
Larry M. Gorski
Life Actuary
Illinois Department of Insurance
"Professor Hardy strikes the right balance between theory development and practical demonstration, offering insights to both novices and experienced practitioners. Her comprehensive treatment of risk modeling of investment guarantees will benefit actuaries and financial engineers alike, allowing each to understand better the nature and management of equity exposure. Exceptionally readable, Investment Guarantees is an invaluable resource for insurance and financial professionals working with equity-linked insurance and annuity products."
Geoffrey H. Hancock
Principal
Mercer Risk, Finance & Insurance Consulting
Synopsis
A comprehensive guide to investment guarantees in equity-linked life insurance
Due to the convergence of financial and insurance markets, new forms of investment guarantees are emerging which require financial service professionals to become savvier in modeling and risk management. With chapters that discuss stock return models, dynamic hedging, risk measures, Markov Chain Monte Carlo estimation, and much more, this one-stop reference contains the valuable insights and proven techniques that will allow readers to better understand the theory and practice of investment guarantees and equity-linked insurance policies.
Mary Hardy, PhD (Waterloo, Ontario, Canada), is an Associate Professor and Associate Chair of Actuarial Science at the University of Waterloo and is a Fellow of the Institute of Actuaries and an Associate of the Society of Actuaries, where she is a frequent speaker. Her research covers topics in life insurance solvency and risk management, with particular emphasis on equity-linked insurance. Hardy is an Associate Editor of the North American Actuarial Journal and the ASTIN Bulletin and is a Deputy Editor of the British Actuarial Journal.
About the Author
MARY HARDY is an Associate Professor and Associate Chair of Actuarial Science at the University of Waterloo, a Fellow of the Institute of Actuaries, and an Associate of the Society of Actuaries.
Table of Contents
Introduction.
Investment Guarantees.
Modeling Long-Term Stock Return.
Maximum Likelihood Estimation for Stock Return Models.
The Left-Tail Calibration Method.
Markov Chain Monte Carlo (MCMC) Estimation.
Modeling the Guarantee Liability.
A Review of Option Pricing Theory.
Dynamic Hedging for Separate Account Guarantees.
Risk Measures.
Emerging Cost Analysis.
Forecast Uncertainty.
Guaranteed Annuity Options.
Equity-Indexed Annuities.
Appendix A: Mortality and Survival Probabilities.
Appendix B: The GMAB Option Price.
Appendix C: Actuarial Notation.
Appendix D: References.
Index.