Fair Valuation of Life Insurance Contracts with Embedded Options

This article gradually highlights the main problems that an insurance company has to face when issuing complex life insurance contracts with embedded options, and presents the basic principles that can be applied in order to price them. The article is based on some conferences that the author gave as invited speaker at the Austrian Workshop on Asset Liability Management in Insurance (Wien, 2004), the Workshop on Life Insurance Fair Valuation (Lyon, 2005), the Annual Meeting of the Swiss Association of Actuaries (Lausanne, 2006), the 9th Spanish-Italian Congress of Financial and Actuarial Mathematics (Alcalá de Henares, 2006), and at the University of Ljubljana (2007).