Investment Guarantees: The New Science of Modeling and Risk Management for Equity-Linked Life Insurance [Hardcover]

Mary Hardy (Author)

Book Description

Publication Date: February 14, 2003 | ISBN-10: 0471392901 | ISBN-13: 978-0471392903 | Edition: 1

A comprehensive guide to investment guarantees in equity-linked life insurance
Due to the convergence of financial and insurance markets, new forms of investment guarantees are emerging which require financial service professionals to become savvier in modeling and risk management. With chapters that discuss stock return models, dynamic hedging, risk measures, Markov Chain Monte Carlo estimation, and much more, this one-stop reference contains the valuable insights and proven techniques that will allow readers to better understand the theory and practice of investment guarantees and equity-linked insurance policies.
Mary Hardy, PhD (Waterloo, Ontario, Canada), is an Associate Professor and Associate Chair of Actuarial Science at the University of Waterloo and is a Fellow of the Institute of Actuaries and an Associate of the Society of Actuaries, where she is a frequent speaker. Her research covers topics in life insurance solvency and risk management, with particular emphasis on equity-linked insurance. Hardy is an Associate Editor of the North American Actuarial Journal and the ASTIN Bulletin and is a Deputy Editor of the British Actuarial Journal.

Editorial Reviews

From the Inside Flap

The object of life insurance is to provide financial security to policyholders and their families. But insurance markets around the world are changing, and policyholders want to enjoy the benefits of equity investments in conjunction with mortality protection. This idea has led to the development of equity-linked life insurance, and has probably left you searching for better ways to model these innovative investment guarantees as well as measure the risk associated with them.

Whether you’re involved with the product design, marketing, pricing and valuation, or risk management of equity-linked insurance, this book has something for you. Investment Guarantees: Modeling and Risk Management for Equity-Linked Life Insurance is a comprehensive guide that combines the econometric analysis of these investment models with their applications in pricing and risk management.

Designed with all equity-linked life insurance practitioners in mind, you’ll find both approaches to risk management of equity-linked insurance–the "actuarial" approach and the dynamic hedging approach–presented, discussed, and extensively illustrated with examples. Investment Guarantees opens with a discussion of various models, moves through modeling techniques, and addresses risk management in a straightforward, accessible manner. This unique resource will:

• Introduce the various types of investment guarantees commonly used in equity-linked insurance, including guaranteed death and living benefits
• Explore contracts which offer investment guarantees as part of the benefit package–variable annuities, segregated fund contracts, unit-linked contracts, equity-indexed annuities, and guaranteed annuity options
• Discuss stochastic models commonly used for equity returns, including ARCH and GARCH models, and regime switching models
• Illustrate parameter estimation using both Maximum Likelihood Estimation (MLE) and Markov Chain Monte Carlo Method (MCMC)–a Bayesian approach
• Explain how to model investment guarantees using the "actuarial" approach and the dynamic hedging approach to risk management
• Describe stochastic emerging cost modeling
• Examine the sources of forecast uncertainty

Investment Guarantees carefully pulls together all of the most recent models and methods that are useful in managing the risk associated with equity-linked insurance. Filled with professional insights and proven techniques, this book is a valuable one-stop reference that will allow you to better understand the theory and practice behind modeling and risk management for equity-linked life insurance.

From the Back Cover

Praise for InvestmentGuarantees

"In addition to being a valuable and innovative addition to the literature on risk management of equity-linked insurance, this book provides a uniquely clear demonstration of using different measures in a very practical context. A great way of showing actuaries how to ‘mind their Ps and Qs’!"
—Boris Brizeli
Principal and Chief Operations Officer
GE Insource Limited

"This is an extremely well written and comprehensive book which will be useful for both practitioners and graduate students. It provides a unique synthesis of techniques and tools in econometrics, financial engineering, and simulation applied to questions of fundamental importance in insurance."
—Dr. Andrew Cairns
Reader in Financial and Actuarial Mathematics
Heriot-Watt University

"Investment Guarantees will become the reference book of choice for both actuaries and non-actuaries alike working in the field of guarantees associated with equity-linked products. The book provides an excellent balance between theory and practice in the course of contrasting actuarial modeling and option pricing theory as applied to guarantees on equity-linked products."
—Larry M. Gorski
Life Actuary
Illinois Department of Insurance

"Professor Hardy strikes the right balance between theory development and practical demonstration, offering insights to both novices and experienced practitioners. Her comprehensive treatment of risk modeling of investment guarantees will benefit actuaries and financial engineers alike, allowing each to understand better the nature and management of equity exposure. Exceptionally readable, Investment Guarantees is an invaluable resource for insurance and financial professionals working with equity-linked insurance and annuity products."
—Geoffrey H. Hancock
Principal
Mercer Risk, Finance & Insurance Consulting

See all Editorial Reviews

Product Details

• Hardcover: 352 pages
• Publisher: Wiley; 1 edition (February 14, 2003)
• Language: English
• ISBN-10: 0471392901
• ISBN-13: 978-0471392903
• Product Dimensions: 9.6 x 6.5 x 0.9 inches
• Shipping Weight: 1.6 pounds (View shipping rates and policies)
• Average Customer Review: 4.0 out of 5 stars  See all reviews (2 customer reviews)
• Amazon Best Sellers Rank: #628,652 in Books (See Top 100 in Books)
  • #38 in Books > Business & Investing > Industries & Professions > Insurance > Life

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Customer Reviews

Most Helpful Customer Reviews

6 of 7 people found the following review helpful:

4.0 out of 5 stars Very Helpful, July 16, 2004

By 

Andrew R Knapp (New York, NY United States) - See all my reviews

This review is from: Investment Guarantees: The New Science of Modeling and Risk Management for Equity-Linked Life Insurance (Hardcover)

As guarantee products are popping up all over the global banking and insurance markets, it is absolutely essential to ensure that the proper financial values are upheld in order to avoid many of the problems that the North American market has faced. 'Investment Guarantees' does a wonderful job of describing these risks in simple enough terms that the pages can be quoted to both financial and non financial people. A very powerful read for those looking to undersand the value of guarantees that are placed on accumulation type insurance products.

2 of 2 people found the following review helpful:

4.0 out of 5 stars good description, but not enough detail, June 21, 2008

By 

econfkw "econfkw" (usa) - See all my reviews

This review is from: Investment Guarantees: The New Science of Modeling and Risk Management for Equity-Linked Life Insurance (Hardcover)

The blend of econometrics, finance and math is fair enough. It's readable for both finance and non-finance people. There can be certain ways to make the book more pratical:

1.While I understand the result of the calibrations, I'm afraid that I can't replicate the results. The calibration steps should be outlined.

2.Since most of the calibration results are done by excel, the author can explain more how to do it by excel; or simply post the excel examples at the author's website. That is something that many people are doing.

3. The regime-switching model, while drawing a lot of attention in academic, is still not popular. There is still not enough evidence that it outperforms the traditional ARIMA models. In fact, it's the opposite. More pages should be spent on ARIMA.