Exchange Option Pricing Approach to Deposit Insurance Premium for Korean Life Insurance

Sung Jooho (성주호); KIM DAEHWAN (김대환); Dong-Hwa Lee (이동화)

doi:10.23842/jif.2019.30.2.002

Exchange Option Pricing Approach to Deposit Insurance Premium for Korean Life Insurance

Journal of Insurance and Finance
2019, 30(2), pp.55-81
DOI : 10.23842/jif.2019.30.2.002
Publisher : Korea Insurance Research Institute
Research Area : Social Science > Business Management
Received : December 11, 2018
Accepted : May 16, 2019
Published : May 31, 2019

Sung Jooho ¹, KIM DAEHWAN ², Dong-Hwa Lee ¹

¹경희대학교
²동아대학교

Accredited

ABSTRACT

This paper aims to investigate the risk-based premium rates of the Korea Deposit Insurance Corporation (KDIC), particularly focusing on life insurance firms. To accomplish this, we employ the exchange option model based on the assumption that assets and liabilities follow lognormal diffusion processes. Further, we incorporate the discount rate of expenses based on a purchase-and-assumption to consider the characteristics of the life insurance sector. To estimate premium rates between 2010 and 2017, we use the empirical data of Korean life insurance firms and asset indexes from 2000 to 2016. The result provides evidence that life insurance companies in Korea have been generally charged higher premium rates than they should be charged. The result also shows that most of the healthy life insurance companies aid a smaller number of risky companies in Korea. Finally, our result indicates that premium rates tend to be more sensitive to correlation between assets and liabilities under capital deficiencies.

KEYWORDS

Deposit insurance scheme, Risk-based premium, Option pricing model, Life insurance industry

Citation status

* References for papers published after 2023 are currently being built.

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[web] / 2018 / http://www.bok.or.kr/eng/main/main.do / http://www.bok.or.kr/eng/main/main.do

[web] / 2018 / http://nland.kbstar.com / http://nland.kbstar.com

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Journal of Insurance and Finance 2023 KCI Impact Factor : 0.59

Exchange Option Pricing Approach to Deposit Insurance Premium for Korean Life Insurance

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Citation status

* References for papers published after 2023 are currently being built.

Journal of Insurance and Finance 2023 KCI Impact Factor : 0.59

Exchange Option Pricing Approach to Deposit Insurance Premium for Korean Life Insurance

ABSTRACT

KEYWORDS

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* References for papers published after 2023 are currently being built.