Hybrid life insurance valuation based on a new standard deviation premium principle in a stochastic interest rate framework
(2023) , 30 pages
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- Abstract
- In a complete arbitrage-free financial market, financial products are valued with the risk-neutral measure and these products are completely hedgeable. In life insurance, the approach is different as the valuation is based on an insurance premium principle which includes a safety loading. The insurer reduces the risk by pooling a vast number of independent risks. In our framework, we suggest valuations of a class of products that are dependent on both mortality and financial risk, namely hybrid life products. The main contribution of this paper is to present a generalized standard deviation premium principle in a stochastic interest rate framework, and to integrate it in different valuation operators suggested in the literature. We illustrate our methods with a classical application, namely a Pure Endowment with profit. Several numerical results are presented, and an extensive sensitivity analysis is included.
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Citations
Belhouari, O., Deelstra, G., & Devolder, P. (2023). Hybrid life insurance valuation based on a new standard deviation premium principle in a stochastic interest rate framework (LIDAM Discussion Paper ISBA 2023/23). https://hdl.handle.net/2078.5/104758