Dependent interest and transition rates in life insurance
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Dependent interest and transition rates in life insurance. / Buchardt, Kristian.
I: Insurance: Mathematics and Economics, Bind 55, 2014, s. 167–179.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - Dependent interest and transition rates in life insurance
AU - Buchardt, Kristian
PY - 2014
Y1 - 2014
N2 - For market consistent life insurance liabilities modelled with a multi-state Markov chain, it is of importance to consider the interest and transition rates as stochastic processes, for example in order to consider hedging possibilities of the risks, and for risk measurement. In the literature, this is usually done with an assumption of independence between the interest and transition rates. In this paper, it is shown how to valuate life insurance liabilities using affine processes for modelling dependent interest and transition rates. This approach leads to the introduction of so-called dependent forward rates. We propose a specific model for surrender modelling, and within this model the dependent forward rates are calculated, and the market value and the Solvency II capital requirement are examined for a simple savings contract.
AB - For market consistent life insurance liabilities modelled with a multi-state Markov chain, it is of importance to consider the interest and transition rates as stochastic processes, for example in order to consider hedging possibilities of the risks, and for risk measurement. In the literature, this is usually done with an assumption of independence between the interest and transition rates. In this paper, it is shown how to valuate life insurance liabilities using affine processes for modelling dependent interest and transition rates. This approach leads to the introduction of so-called dependent forward rates. We propose a specific model for surrender modelling, and within this model the dependent forward rates are calculated, and the market value and the Solvency II capital requirement are examined for a simple savings contract.
U2 - 10.1016/j.insmatheco.2014.01.004
DO - 10.1016/j.insmatheco.2014.01.004
M3 - Journal article
VL - 55
SP - 167
EP - 179
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
SN - 0167-6687
ER -
ID: 137754523