A Study On The Surrender Option Value Of Participating Life Insurance In China

Though the development of Chinese Participating Insurance is not too long,it has be-came one kind of indispensable product in almost every insurance company.But,there are deviations in Policy Holders' understanding the functions of Participating Insurance.Once the real dividend is different from expected dividend greatly,or the economic en-vironment is changing greatly,the policy holders will generate the thought of surrender,this will cause a lot of problem.China has about one fifth of the world's population,so it has a massive potential market for life insurance.Premium Income of Participating Insurance reached to 222.1 billion,Participating Insurance is raising the lion's share of life insurance market,follow risk of surrender cannot be neglected.So the article tries to discuss and analyze the surrender issues especially for the value of surrender option.We simulate the variation of asset value under the risk-neutral unique equivalent martingale measure Q under the condition that the contract is fair in order to get the appropriate surplus distribution rate.Then,we use least square Monte Carlo simulation method to compare the policy value between exercising the surrender option and keeping holding the option using backward recursive and decide whether surrender or not to get the optimal exercise time.After that we can calculate the surrender option value.Finally,we explore the relationship between surrender option value and guaranteed interest rate g,the risk free rate r through sensitive analysis.Finally,this article puts forward some measures how to reduce the loss of surrender from the three aspects of the insured,the insurance company and Regulatory organiza-tion.From the point of view of the insured,it recommends the use of hesitate to surrender or the handling of reduced premium.shorten the period of insurance contract etc.in-stead of exercising surrender option.From the point of view of the insurance company,it recommends improve the technique of life insurance product pricing?improve the abil-ity of actuary?strengthen the management to marketing staff of life insurance,inform of the potential income risk truthfully to reduce surrender risk.From the point of view of Regulatory organization,it recommends exert the role to supervise and guide simultane-ously.