Measuring The Benefit Of Islamic Unit Linked For Customer By ANP (Analytic Network Process)

This research aims to analyze the customer benefit of Islamic unit link by ANP method (Analytic Network Process). The analysis resulted that the value of inconsistency index < 0,1, it means that all respondents are consistent in answering the questionnaire. W value of opportunity and benefit cluster is 1; it means all respondents have complete agreement. While W value of cost cluster is 0,18 and risk cluster is 0,15. It means that agreement among respondents is lower. The most dominance cost is acquisition cost (2.49273), and the most dominance risk is discomply to Syariah risk (2.71049). The score of benefit cluster for the customer is lower than Cost cluster (6.52) and Risk cluster (6.83), because of benefit cluster score 6.21. In answering choice between buying or don’t buy Syariah unit link, attention must be paid to opportunity cluster score, namely 4.75. It is lower than benefit, cost, and risk cluster. It shows that Syariah unit link is offering a lower opportunity to gain financial benefit than bearing cost and risk

Explicit portfolio for unit-linked life insurance contracts with surrender option

AbstractIntroducing a surrender option in unit-linked life insurance contracts leads to a dependence between the surrender time and the financial market. [J. Barbarin, Risk minimizing strategies for life insurance contracts with surrender option, Tech. rep., University of Louvain-La-Neuve, 2007] used a lot of concepts from credit risk to describe the surrender time in order to hedge such types of contracts. The basic assumption made by Barbarin is that the surrender time is not a stopping time with respect to the financial market.The goal of this article is to make the hedging strategies more explicit by introducing concrete processes for the risky asset and by restricting the hazard process to an absolutely continuous process.First, we assume that the risky asset follows a geometric Brownian motion. This extends the theory of [T. Møller, Risk-minimizing hedging strategies for insurance payment processes, Finance and Stochastics 5 (2001) 419–446], in that the random times of payment are not independent of the financial market. Second, the risky asset follows a Lévy process.For both cases, we assume the payment process contains a continuous payment stream until surrender or maturity and a payment at surrender or at maturity, whichever comes first

Quadratic hedging in finance and insurance

Quadratic hedging is a specific form of utility hedging, where the strategy minimizes the hedging error in mean square sense. Hence risk is in this case quantified as variance. One of the obvious drawbacks of quadratic hedging is that losses and gains are treated in the same way. On the other hand, this might be an advantage, in case you do not know whether you deal with a buyer or a seller. Another advantage is that quadratic strategies related to different options can simply be added up as is also the case for delta-hedging strategies. In other words, quadratic hedging is a sort of linear hedging strategy. The mean-variance hedging strategy is one of the two main quadratic hedging strategies we will discuss. The other one is the (locally) risk-minimizing hedging strategy. In the mean-variance hedging theory the goal is to minimize the difference between the claim H at maturity T and the portfolio at that time, using a self-financing strategy. In the risk-minimizing hedging strategy, the goal is to minimize the variance of the cost process at any time t subject to the condition that the value of the portfolio at time T equals the claim H. In the latter case, it is only possible to find a self-financing portfolio when the claim is attainable. The risk-minimizing hedging strategy only makes sense when the underlying is a martingale, the extension to semimartingales is called local risk-minimization. We focus mainly on quadratic hedging and especially on the locally risk-minimizing hedging strategy and related to it, the Föllmer-Schweizer decomposition. We do not only look at the pure financial market, but we also determine hedging strategies for the insurance market, as well as for the interest rate derivatives market and the commodity market. At the end we also discuss the implementation of the quadratic hedging strategies and compare the total costs related to different hedging strategies