In this paper we present a model for the pricing of an index linked insurance contract with a basket cliquet option embedded. The model moves from the seminal and widely accepted model of Brennan & Schwartz but uses a copula approach to describe the dependence between the two stochastic indexes composing the underlying basket. The pricing is made via Monte Carlo stochastic simulation; some useful algorithms are described. An application and a comparative static analysis are presented
Pricing index linked policies with basket cliquet options embedded using a copula approach
MICOCCI, M.;MASALA, G. B.
2003-01-01
Abstract
In this paper we present a model for the pricing of an index linked insurance contract with a basket cliquet option embedded. The model moves from the seminal and widely accepted model of Brennan & Schwartz but uses a copula approach to describe the dependence between the two stochastic indexes composing the underlying basket. The pricing is made via Monte Carlo stochastic simulation; some useful algorithms are described. An application and a comparative static analysis are presented
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