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An option pricing approach to bonus policy

In this paper I discuss a simple application of option pricing theory to bonuses on with-profits life assurance policies. The approach is a new one and I have been able to make only an introductory exploration of its possible applications. Nevertheless it seems to me to give actuaries some sort of a handle for gripping the rather intractable problem of the relationship between reversionary bonus, terminal bonus and the proceeds of comparable unit-linked policies.


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