Numerical valuation of Surrender Options

Specialeforsvar ved: Mads Hjeresen

Titel: Numerical Valuation of Surrender Options

Resume: In this thesis, we examine the consequences of calculating the liabilities of the insurance company, in presence of a stochastic (CIR) interest rate, as opposed to a setup using a eterministic, time dependent interest rate. We provide detailed descriptions of both a DM and a binomial model approach in each of these setups. We successfully implement hree of the four models, as the FDM in presence of the CIR interest rate prove to require numerical methods well outside the scope of the thesis. Numerical results of the three implemented models suggest, that the presence of the CIR interest rate model does not have a significant effect on the liabilities.

Vejleder: Mogens Steffensen
Censor: Jesper Olesen, Danica pension