Pricing Equity-Indexed Annuities Under The Credit Risk

Ageing of population dominates the world, China included. In consequence,providing for the aged become the highlighted problem. Elementary pension can only guarantee the basic life level, far from the living needs. So, the demands for the commercial annuity is huge. However, the traditional annuity fix the future yield, the insured faces the inflation risk, the insurer faces the interest risk. Among the modern annuity, variable annuity transfer the risk to the insured fully, fixed annuity has quite a low guaranteed yield, in this situation, EIA is forthcoming.EIA is a new type annuity, it puzzled most of the scholars and the practioners because of its combining with the security, index, insurance etc. Most of the study focuses on the pricing, considers the mortality only, and omits the important credit factor, which seems acceptable at the new product development stage. However, the insured expect the more fair and justice price, broker emphasize the reputation, insurer hope the product more competitive. Under this condition, more accurate model is necessary. In this paper, we make an effort in this aspect, put forward the pricing problem under the credit factor, and get an explicit result. In addition, we discuss the reserve problem.In this paper, we interpret company default(bankrupt) as "death" , equivalent with another insured's death, so we can consider them as joint lives. Based on that, we study the pricing question of EIA, give the reserve structure under the risk minimizing strategy and get the explicit result.This paper include four chapters. Firstly, Introduction. In this chapter, we introduce the background of EIA and its basic information. Secondly, Credit Risk Valuation and Measurement. In this chapter, we explain the necessary of considering credit factor when pricing the EIA, then we introduce some traditional and modern credit measurement models. Thirdly, Pricing EIA Under the Credit Risk(First Part). In this chapter, we get the pricing and reserve structure under the point to point index method, assuming that rate of recovery is 1.We use the risk neutral pricing, risk minimizing strategy, percentile principle etc. Fourthly, Pricing EIA Under the Credit Risk(Second Part). In this chapter, we extend the recovery rate from 1 to δ, under the same index method and pricing method. In the epilogue, we represent some further challenging aspect on this subject.