Valuation of the surrender option in equity-linked life insurance contracts. (2017)

• Record Type: Journal Article
• Authors: Ammous, Dorra Guermazi; Abid, Fathi
• Is Part Of: International journal of auditing technology. Volume 3:Number 4(2017)
• Page Start: 282
• Page End: 296
• Publication Date: 2017
• Subjects: equity-linked life insurance contract -- surrender option -- binomial model; Information storage and retrieval systems -- Accounting -- Periodicals; Computer security -- Management -- Periodicals; Information technology -- Auditing -- Periodicals; 657.450285
• Languages: English
• ISSNs: 1757-8752

Abstract

In this paper, we consider the surrender option, a specific embedded option in unit-linked life insurance contracts that gives the insured the right to terminate early the contract before maturity and receive a cash amount called surrender value. We use the no arbitrage approach to value the surrender option, seen as an US option. The valuation is based on the Cox et al. (1979) binomial model. The aim of this contribution is to expose the methodological approach in the particular case of the single premium contract, with focus on the surrender option valuation and to allow the exploitation of this intuitive and flexible method in order to deal with more realistic and complex valuation frameworks.