On the optimal design of insurance contracts with guarantees |
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Authors: | Nicole Branger |
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Affiliation: | a Finance Center Münster, Westfälische Wilhelms-Universität Münster, Universitätsstr. 14-16, D-48143 Münster, Germany b Mercator School of Management, Universität Duisburg-Essen, Lotharstr. 65, D-47057 Duisburg, Germany |
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Abstract: | The paper analyzes insurance contracts where the benefits of the insured depend on the performance of an investment strategy and which guarantee a certain interest rate on the contributions made by the insured. The insured has to decide simultaneously on the investment strategy and the guarantee scheme. For a CRRA insured and in a BS economy, the optimal combination is given by a constant mix strategy and the contribution guarantee scheme. In case the insured has a subsistence level, the CPPI strategy turns out to be optimal for arbitrary schemes. We illustrate our results by numerical examples and analyze the utility losses of a CRRA insured due to the use of a suboptimal combination of investment strategy and guarantee scheme. |
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Keywords: | G11 G22 |
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