Valuation of Cliquet-Style Guarantees with Death Benefits in Jump Diffusion Models

Abstract

This paper aims to value the cliquet-style equity-linked insurance product with death benefits. Whether the insured dies before the contract maturity or not, a benefit payment to the beneficiary is due. The premium is invested in a financial asset, whose dynamics are assumed to follow an exponential jump diffusion. In addition, the remaining lifetime of an insured is modelled by an independent random variable whose distribution can be approximated by a linear combination of exponential distributions. We found that the valuation problem reduced to calculating certain discounted expectations. The Laplace inverse transform and techniques from existing literature were implemented to obtain analytical valuation formulae.