Market Value of Life Insurance Contracts under Stochastic Interest Rates and Default Risk

The purpose of this article is to value some life insurance contracts in a stochastic interest rate environment taking into account the default risk of the underlying insurance company. The participating life insurance contracts considered here can be expressed as portfolios of barrier options as shown by Grosen and Jørgensen [1997]. In order to price these options, the Longstaff and Schwartz [1995] methodology is used with the Collin-Dufresne and Goldstein [2001] correction.