Partial Hedging of Equity-Linked Products in the Presence of Policyholder Surrender Using Risk Measures
Bibliographic record
Abstract
Throughout the past couple of decades, the surge in the sale of equity linked products has led to many discussions on the valuation of surrender options embedded in these products. However, most studies treat such options as American/Bermudian style options. In this thesis, a different approach is presented where only a portion of the policyholders react optimally, due to the belief that not all policyholders are rational. Through this method, a probability of surrender is found and the product is partially hedged by iteratively reducing the measure of risk to a non-positive value. This partial hedging framework is versatile since few assumptions are made. To demonstrate this, the initial capital requirement for an equity linked product is found under a bivariate equity/interest model with a copula based dependence structure. A numerical example is presented in order to demonstrate some of the dynamics of this valuation method. In addition, a surprising result is found during the adjustment of the surrender parameters which directly implies that under a particular valuation method, an increased number of policy surrenders causes a drop in the initial capital requirement. This counter-intuitive result is directly caused by the partial hedging method.
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How this classification was reachedexpand
Full frame distilled prediction
Teacher imitationNot calibrated prevalence, not ground truth. Human validation pending. Learned from the 10,348 direct Codex labels and 10,348 direct Gemma labels. Candidate is the union of thresholded teacher heads; consensus is their intersection. These outputs are machine_predicted_unvalidated and are not human labels or direct frontier model labels.
Codex and Gemma teacher scores by category
| Category | Codex | Gemma |
|---|---|---|
| Metaresearch | 0.002 | 0.001 |
| Meta-epidemiology (narrow) | 0.000 | 0.000 |
| Meta-epidemiology (broad) | 0.001 | 0.000 |
| Bibliometrics | 0.001 | 0.002 |
| Science and technology studies | 0.000 | 0.000 |
| Scholarly communication | 0.000 | 0.000 |
| Open science | 0.001 | 0.000 |
| Research integrity | 0.000 | 0.001 |
| Insufficient payload (model declined to judge) | 0.000 | 0.000 |
Machine scores (provisional)
The two teacher heads of the student model, read on this work. A score orders the frame for review; it never asserts a category, and the validation status ships verbatim with every row.
Baseline scores from an immature model (maturity gate not passed, 7 training rounds). Scores rank; they never assert a category.
score_only:v0-immature-baseline · verbatim from the scoring run: score_only means the number may rank works, and no category label ships from itClassification
machine, unvalidatedMachine predicted; a candidate call from one teacher head, not a consensus.
How this classification was reached, model by model and score by score, is at the end of the page under "How this classification was reached".