China's Investment-linked Insurance Pricing Model And Empirical Analysis

Investment-linked life insurance, which first appeared in Holland, originated from the western banking innovation in the middle of the 20^th century. It diversified customers' choices and soon became the mainstream of the world's life insurance market. Investment-linked life insurance is a non-traditional form, which combines the protection and tax advantages of insurance with the attractive prospects of investing in securities. In 1999, the first investment-linked life insurance entered China's mainland. From its original brisk sale to later "withdraw storm", it really experienced a lot. However, whether this newly-born policy suits China's market? And what will its future look like? All these questions deserve to be discussed.Starting from the whole insurance industry, this paper reviews the development of life insurance, introduces the background of investment-linked life insurance and its basic principles and compares it with the traditional life insurance policies. In order to make clear the special function of the capital running, this paper then gives the quantitative analysis by table forms. For a newly-born policy, pricing is the key point, so the paper then studies the pricing model of this kind of policy. Firstly, the B-S option pricing formula is applied to give the pricing of fixed interest rate model. And then a pricing model of stochastic interest rate is introduced, and also the C++ programmed algorithm is used to make sensitive analysis to several important parameters, which is expected to offer some help to policy pricing in practice and risk management of insurance companies. Based on both the experience abroad and China's national conditions, the last part of this paper point out the shortage in the developing process and give some suggestion on the future at the same time.