Research On Option Pricing Model Of Universal Life Insurance

In recent years,the number of mainland policyholders buying offshore insurance has increased significantly.According to the survey data of “Going Global: Trends of the Chinese HNWI”,About 50% of high net worth individuals have a positive attitude towards overseas asset allocation.The increasing capital outflow is not only for China’s insurance industry,but also for the whole industry.In the mainland,with the popularity of universal life insurance in China,China’s investment life insurance has been rising in various types of policies,The overheated market leads to the transformation of universal insurance property,and becomes a short and medium survival financial product with very little protection function.The value added value added by the huge capital gradually appeared,So that it had to raise the securities market frequently,Such events as the 2016 " Ownership War" have added a lot of systemic risk to China’s financial market.From the perspective of the management of insurance companies,the value of embedded options in life insurance products has been neglected in the insurance business process of our country for a long time.In practice,the pricing of insurance policy is mainly based on traditional actuarial pricing.However,the value of the implied warranty and guaranteed income option in universal insurance policy is highly susceptible to the fluctuation of market interest rate,which will greatly affect the cash flow of future insurance companies.In the 1990 s,for example,Japan’s nissan life insurance company declared bankruptcy,breaking the myth that "insurance companies never fail".The proximate cause of its bankruptcy was the fall in market interest rates and the failure of the company’s asset allocation.The fundamental reason is that the risk assessment of the value of the option is not included in the product design.The incident also serves as a wake-up call for China’s insurance operations.So "insurance sign" in 2016,the China insurance regulatory commission to stop some illegal sales of universal coverage,timely stopped the further spread of the risk,and then on the agenda is universal insurance product design should be how to adjust to prompt it to return to guarantee and how to accurately on the debt side in terms of product pricing and risk estimation,etc.In terms of industry requirements,The promulgation of accounting standards and the provisions on accounting treatment of insurance contracts issued by the ministry of finance require the insurance company to adopt the fair value measurement method for liabilities from 2009,But because the research on the implied options of the policy is not deep enough,In the actuarial practice of insurance companies in China,there is no scientific mechanism for the fair pricing of embedded options.However,the limitation of traditional actuarial pricing on the assumption of interest rate is not suitable for the fair value measurement of investment life insurance policies.Therefore,starting from universal insurance products,this paper makes a comparative analysis of domestic and foreign universal insurance policies.Then split the policy structure,Under the assumption that the value of the underlying asset value is subject to the geometric Brownian motion and the risk-free interest rate satisfies the Vasicek mean return,Using the least squares monte carlo simulation method(LSM)to determine the value of the guaranteed return options and the value of the termination options of the future insurance company’s cash flow.Finally,it is concluded that the guaranteed income option is the largest and most risky embedded option in the value of the policy.Its value by the market interest rate fluctuations,portfolio changes,earnings smoothing mechanism,guaranteed interest rate setting and insurance time limit,the influence of such factors as to perfect the universal coverage in the area of embedded option pricing mechanism and provides a preliminary way.