Fair Valuation of Life Insurance Contracts Under a Two-Sided Jump Diffusion Model

Abstract

In this article, we study the fair valuation of participating life insurance contract, which is one of the most common life insurance products, under the two-sided jump diffusion model with the consideration of default risk. The participating life insurance contracts considered here can be expressed as portfolios of options as shown by Grosen and Jøgrgensen (1997). We can give the Laplace transforms for these options under the two-sided jump diffusion model, and then price these options by inverting Laplace transforms.