Exploring the Dependence between Mortality and Market Risks

In this paper we study the pricing and hedging problem of a portfolio of life insurance products under the benchmark approach, where the reference market is modelled as driven by a state variable following a polynomial diffusion on a compact state space. Such a model can be used to guarantee not only the positivity of the OIS short rate and the mortality intensity, but also the possibility of approximating both pricing formula and hedging strategy of a large class of life insurance products by explicit formulas.JEL Classification: C02, G10, G19

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“…Recent studies, see e.g. [35], [13] and [15], confirm the important role of this dependence structure when pricing life insurance liabilities.…”

Section: Introductionmentioning

confidence: 81%

Polynomial diffusion models for life insurance liabilities

Biagini

Zhang²

2016

Insurance: Mathematics and Economics

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“…et. al (2016) and Dacorogna and Meitner (2015). 7 Note that we have E(1 {t<τ } ) = P(τ > t) and therefore E (…”

Section: The Modelmentioning

confidence: 99%

“…We assume that the random time τ is independent of any of the economic state variables 6 , and hence we obtain 7…”

Section: The Modelmentioning

confidence: 99%

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On the effects of changing mortality patterns on investment, labour and consumption under uncertainty

Ewald

Zhang

2017

Insurance: Mathematics and Economics

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In this paper we extend the consumption-investment life cycle model for an uncertain-lived agent, proposed by Richard (1974), to allow for flexible labor supply. We further study the consumption, labor supply and portfolio decisions of an agent facing age-dependent mortality risk, as presented by UK actuarial life tables spanning the time period from 1951-2060 (including mortality forecasts). We find that historical changes in mortality produces significant changes in portfolio investment (more risk taking), labour (decrease of hours) and consumption level (shift to higher level) contributing up to 5% to GDP growth during the period from 1980 until 2010.

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“…Background rate risks. As we have explained in [2] providing an overview of the motivation and goals underlying our research, we expand the empirical study done in [6] by a more theoretical approach where we model the dynamics of both mortality and interest rate intensities with the same type of equations and within the same framework. In particular, we exploit the following important similarities between the intensity of mortality and the one of interest rate, stressed in Milevsky and Promislow [16], Dahl [8] and Biffis [4]: both are positive processes, have term structures, are stochastic in nature.…”

Section: Scor Paper N°18 -Calculations Under the Sii Coc Approachmentioning

confidence: 99%