Journal of Applied Mathematics and Stochastic Analysis 
Volume 2008 (2008), Article ID 474623, 30 pages
doi:10.1155/2008/474623
Research Article

Pricing Participating Products under a Generalized Jump-Diffusion Model

Tak Kuen Siu,1 John W. Lau,2 and Hailiang Yang3

 1Department of Mathematics and Statistics, Curtin University of Technology, Perth, Western Australia 6845, Australia
2Department of Mathematics, University of Bristol, Bristol BS8 1TW, UK
3Department of Statistics and Actuarial Science, The University of Hong Kong, Pokfulam Road, Hong Kong
Received 21 January 2008; Accepted 20 May 2008

Recommended by Vo Anh

Abstract

We propose a model for valuing participating life insurance products under a generalized jump-diffusion model with a Markov-switching compensator. It also nests a number of important and popular models in finance, including the classes of jump-diffusion models and Markovian regime-switching models. The Esscher transform is employed to determine an equivalent martingale measure. Simulation experiments are conducted to illustrate the practical implementation of the model and to highlight some features that can be obtained from our model.