Valuation of contingent guarantees using least-squares Monte Carlo

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<title>Valuation of contingent guarantees using least-squares Monte Carlo</title>
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<namePart>Bienek, T.</namePart>
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<namePart>Scherer, M.</namePart>
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<abstract displayLabel="Summary">We consider the problem of pricing modern guarantee concepts in unit-linked life insurance, where the guaranteed amount grows contingent on the performance of an investment fund that acts simultaneously as the underlying security and the replicating portfolio. Using the Martingale Method, this nonstandard pricing problem can be transformed into a fixed-point problem, whose solution requires the evaluation of conditional expectations of highly path-dependent payoffs. By adapting the least-squares Monte Carlo method for American option pricing problems, we develop a new numerical approach to approximate the value of contingent guarantees and prove its convergence. Our valuation procedure can be applied to large-scale pricing problems, for which existing methods are infeasible, and leads to significant improvements in performance. </abstract>
<note type="statement of responsibility">T. Bienek, M. Scherer</note>
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<topic>Matemática del seguro</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080570590">
<topic>Seguro de vida</topic>
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<topic>Modelos de simulación</topic>
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<subject xmlns:xlink="http://www.w3.org/1999/xlink" xlink:href="MAPA20080608606">
<topic>Simulación Monte Carlo</topic>
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<topic>Unit-Linked</topic>
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<title>Astin bulletin</title>
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<publisher>Belgium : ASTIN and AFIR Sections of the International Actuarial Association</publisher>
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<identifier type="issn">0515-0361</identifier>
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<text>01/01/2019 Volumen 49 Número 1 - enero 2019 , p. 31-56</text>
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