Pricing index linked policies with basket cliquet options embedded using a copula approach

MICOCCI, M.;MASALA, G. B.

2003-01-01

---

Abstract

In this paper we present a model for the pricing of an index linked insurance contract with a basket cliquet option embedded. The model moves from the seminal and widely accepted model of Brennan & Schwartz but uses a copula approach to describe the dependence between the two stochastic indexes composing the underlying basket. The pricing is made via Monte Carlo stochastic simulation; some useful algorithms are described. An application and a comparative static analysis are presented