Multi-state models for evaluating conversion options in life insurance✩
Volume 4, Issue 2 (2017), pp. 127–139
Pub. online: 10 May 2017
Type: Research Article
Open Access
Open Access
✩
This work is dedicated to Prof. Dmitrii Silvestrov in recognition of his contribution to actuarial mathematics.
Received
29 March 2017
29 March 2017
Revised
20 April 2017
20 April 2017
Accepted
21 April 2017
21 April 2017
Published
10 May 2017
10 May 2017
Abstract
In this paper we propose a multi-state model for the evaluation of the conversion option contract. The multi-state model is based on age-indexed semi-Markov chains that are able to reproduce many important aspects that influence the valuation of the option such as the duration problem, the time non-homogeneity and the ageing effect. The value of the conversion option is evaluated after the formal description of this contract.
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