To read this content please select one of the options below:

$40.00 (excl. tax) 30 days to view and download

Discontinuous Hedging Strategies for Multi‐period Guarantees in Life Insurance

SNORRE LINDSET

Journal of Risk Finance

ISSN: 1526-5943

Article publication date: 1 April 2003

151

Abstract

In the past, life insurance companies were mainly exposed to mortality risk, a risk they in principle could diversify by issuing a large number of similar and statistically independent policies. However, as more exotic life insurance policies have been offered, such as unit‐linked life insurance contracts and policies with bonus mechanisms and minimum rate of return guarantees, life insurance companies have also become exposed to financial risk. The financial risk is non‐diver‐sifiable and is likely to affect many, if not most, of the companies outstanding policies in the same direction. Although it is non‐diversifiable, the financial risk is (at least to some extent) hedgeable. Since the accumulated exposure to financial risk over all the policies issued by a life insurance company can be large, it is important that this risk be hedged so that the company is able to meet its obligations to the policyholders.

Citation

LINDSET, S. (2003), "Discontinuous Hedging Strategies for Multi‐period Guarantees in Life Insurance", Journal of Risk Finance, Vol. 5 No. 1, pp. 51-63. https://doi.org/10.1108/eb022979

Publisher

:

MCB UP Ltd

Copyright © 2003, MCB UP Limited

Related articles