Modelling Surrender as a Group Option and its Effect on Future Risk

Specialeforsvar: Rasmus Godsted Foght

Titel: Modelling Surrender as a Group Option and its Effect on Future Risk

Resume: This thesis sets out to investigate some of the implications made by assuming no dependence between regular contracts in standard life insurance models. We will be focusing on the possible dependence structure made by the surrender option, where we will assume that several policyholders might surrender together. We will be formulating a new model that is able to account for this, as well as employing the martingale method for deriving Thiele equations in this new model for both the first and second order moments.
We will be focusing on the risk associated with the contracts, measured by the variance of the present value of the future payments. We end up showing, that not only do the calculated risk increase in the new model, the distribution of present value undergo a major change, resulting in a skewed distribution with a heavier right tail.

Vejleder: Jesper Lund Pedersen
Censor: Kenneth Bruhn