Life Insurance with Guarantees

Abstract

This paper suggests a unified methodology for the management of Guaranteed Minimum Accumulation Benefit contracts. Using a non-Gaussian setting in line with many
of the stylized features observed in the market, we address the pricing, hedging, and
risk control of these contracts from an operational risk management perspective for
practitioners. Since the well-known and widely used delta-hedging ratio is not optimal,
one of the most important problems raised is the issue of hedging. The literature suggests many theoretical solutions whose efficiency from a computational point of view
is controversial and rarely studied. From the empirical part of the paper, the authors
give a simple rule for designing a hedging policy appropriate to the actual financial
environment that proves useful both for insurers and regulators.