Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
Life insurers sell savings contracts with surrender options, which allow policyholders to prematurely receive guaranteed surrender values. These surrender options move toward the money when interest rates rise. Hence, higher interest rates raise surrender rates, as we document empirically by exploiting plausibly exogenous variation in monetary policy. Using a calibrated model, we examine the impact of surrender options on insurers’ liquidity and portfolio rebalancing during an interest rate rise. We show how asset sales result from insurer balance sheet dynamics and explore their interaction with investment strategies and surrender value guarantees.