Valuation of the minimum guaranteed return embedded in life insurance products

In many countries, traditional life insurance products include a fixed percentage guarantee on each year's return. This article presents a model for the valuation of life insurance contracts including a guaranteed minimum return. The model is based on the notion of no arbitrage opportunities from the theories of financial economics and results in some closed-form solutions for market values of different guarantees. Numerical examples indicate that these guarantees may have substantial market values.