Development and Pricing of a New Participating Contract

This article designs and prices a new type of participating life insurance contract. Partic- ipating contracts are popular in the United States and European countries; they present many different covenants and depend on national regulations. In the present article, we design a new type of participating contract very similar to the one considered in other studies, but with the guaranteed rate matching the return of a government bond. We prove that this new type of contract can be valued in closed form when interest rates are stochastic and when the company can default.