Deterministic lifestyle investment strategy in mixed life insurance contracts
(2024) Decisions in Economics and Finance : a journal of applied mathematics — (2024)
Files
ISBA_RP_2024-25.pdf
Open Access - Adobe PDF
- 21.62 MB
Details
- Authors
- Abstract
- Hybrid life insurance contracts have recently gained prominence in various markets. In this context, our interest lies in products that combine participating and unit-linked contracts, delving into the dynamic interplay between financial guarantees and investment strategy. This paper aims to ascertain if the equilibrium between participating and unit-linked life insurance policies aligns with the lifestyle investment strategy, thereby maximizing the expected utility of the policyholder at the contract' s maturity while adhering to the fair pricing relation of the contract. In particular, it looks at the pricing of the fair guaranteed rates and the optimal investment strategy using a specified deterministic investment style. Our analysis reveals that a stable investment strategy often dominates across different levels of risk aversion, within the assumption of the classical utility function. However, to capture policyholders' changing risk preferences as they age, we extend the study to incorporate periodic premium payments and time-varying risk aversion. The results emphasize the effectiveness of this approach in tailoring the lifestyle investment strategy.
- Affiliations
Citations
Hanna, V., & Devolder, P. (2024). Deterministic lifestyle investment strategy in mixed life insurance contracts. Decisions in Economics and Finance : a journal of applied mathematics. Published. https://doi.org/10.1007/s10203-024-00480-y (Original work published 2024)