Pricing Financial Options Embedded in Insurance Contracts

Variable Annuities represent a major part of the present annuity market, which has undergone enormous change in the last two to three decades. New and innovative insurance products have been developed at the same time as we have seen vast increases in computational power. In addition, the field of finance has experienced a revolution in the development of a mathematical theory of options and financial guarantees, first pioneered in the work of Black- Scholes and Merton, and actuaries have come to realize the importance of that work to pricing and risk management in actuarial contexts.