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Evaluating the Guarantee Reserves in Variable Insurance by Stock Return Scenarios with Stochastic Volatility

  • Journal of Insurance and Finance
  • 2012, 23(1), pp.3-34
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management

Geonyoup Noh 1

1보험개발원

Accredited

ABSTRACT

In this study, we analyze stock return scenarios for evaluating required capital for guaranteed minimum benefits embedded in variable insurance. We check volatility clustering in the Korean stock market. This paper proposes LN, AR(1), ARCH and RSLN2 models. We explain model estimation and estimate parameters by using KOSPI data. After generating 1,000 stock return scenarios, we analyze tables and pictures of distributions for each models. The analysis shows statistics of models by years. We compare distribution return data with historical return data. Most models are suitable for historical data except ARCH model. The GMDB cashflows of Variable Universal Whole Life indicate that statistics of RSLN2 models is larger than that of LN model. This study shows RSLN2 model has better results than others. But, we need the analysis of other stochastic volatility models.

Citation status

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