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Rechts- und Staatswissenschaftliche Fakultät - Jahrgang 2012


Titel Pricing and Risk Management of Basket FX Derivatives and Unit-Linked Life Insurance Contracts
Autor Jing Li
Publikationsform Dissertation
Abstract This dissertation deals with pure financial derivatives and financial derivatives which are components of life insurance contracts.
Chapter 1 focuses on the complex situation of basket foreign exchange (FX) products. A well-known feature of basket options is that it is difficult to specify the distribution of the underlying basket starting from the standard assumption that the price processes of the single assets in the basket follow geometric Brownian motions. In Chapter 1, within an international financial market model, a new approximation method, called the rank one approximation method, is proposed. At the first step, it approximates the covariance structure of the uncertain part of the price processes with a rank one matrix and delivers a vector of stochastic processes driven by the same standard normally distributed variable. Then at the second step several adjustment parameters are introduced into the price process of the synthetic underlying basket approximated at the first step for the purpose of correcting the distribution distorted through the first step approximation.By introducing the rank one approximation method, we enlarge the family of approximation methods for the pricing of basket derivatives.
Chapter 2 and 3 are concerned with unit-linked life insurance contracts. The payoffs of unit-linked life insurance contracts depend on mortality risk. In recent years, it has been widely accepted that mortality changes over time in an unpredictable way and stochastic models have been developed to adequately capture the systematic mortality risk. Each mortality model is a possible description of the mortality risk. In Chapter 2, a framework is proposed for assessing the mortality model risk embedded in unit-linked life insurance contracts arising from different specifications for the mortality intensity. The basic assumption of this framework is that we do not know the exact process of the mortality intensity but are able to figure out its upper and lower bound under the statistical measure. This setup allows us to study the impact of mortality model risk on various contract types more efficiently. Chapter 3 studies the valuation of unit-linked life insurance contracts with surrender guarantees. In this chapter, the arrival of the surrender event is described by an intensity-based approach. We assume the surrender intensity to be bounded from below and from above. The lower bound represents the surrender base level due to exogenous reasons. And the upper bound represents the maximal surrender intensity that is attributed to exercise of the surrender option when it is financially optimal to do so. The effect of policyholders' monetary rationality on the fair contract design is studied in detail.
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© Universitäts- und Landesbibliothek Bonn | Veröffentlicht: 16.10.2012