Liability valuation model for unitized participating life insurance based on fair value

Focusing on Unitized Participating life insurance with interest rate guarantees, the fair value measurement attributes were introduced into the field of liability valuation of insurance policies. Based on the classical contingent claim pricing theory, this paper made a multi-period life insurance valuation model. The numerical results are given under Monte Carlo simulation method. The paper shows this model is quite applicable to the liability valuation of life insurance policies which contain interest rate guarantees and embedded options. Considering the impact of credit risk, the Unitized Participating life insurance policy can be decomposed into four parts including a risk free bond element, an annual bonus option, a terminal bonus option and a default option.