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The Study of Applying Black-Scholes Option Pricing Model to the Term Life Insurance

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Quantitative Financial Risk Management

Part of the book series: Computational Risk Management ((Comp. Risk Mgmt,volume 1))

Abstract

With the rapid development of insurance markets, the setting of premium became an important issue. Financial option is an important tool in the financial markets, and the B-S Option Pricing Model, which is risk-neutral pricing model, is based on strict assumptions to calculate the price of the call option. Utilizing the connection between European call option and European put option of risk-free assets, we observe that European put option formula can be obtained by the value of European call option with the same validity and contract price. Insurance and financial options have many similarities, which is actually a kind of put options. Give some assumptions, the B-S Option Pricing Model is applied to term life insurance, and we can summarize the problems that the B-S Option Pricing Model is not suitable to set premium through comparison with insurance actuarial method.

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References

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Author information

Authors and Affiliations

  1. School of Science, Zhejiang University of Science and Technology, 310023, Hangzhou, China

    Lifang Wang, Yue Hu & Danwei Qiu

Authors
  1. Lifang Wang
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  2. Yue Hu
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  3. Danwei Qiu
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Corresponding author

Correspondence to Lifang Wang .

Editor information

Editors and Affiliations

  1. , Risklab, University of Toronto, Spadina Crescent 1, Toronto, M5S 3G3, Ontario, Canada

    Dash Wu

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© 2011 Springer-Verlag Berlin Heidelberg

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Wang, L., Hu, Y., Qiu, D. (2011). The Study of Applying Black-Scholes Option Pricing Model to the Term Life Insurance. In: Wu, D. (eds) Quantitative Financial Risk Management. Computational Risk Management, vol 1. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-19339-2_5

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