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Extension of as-if-Markov modeling to scaled payments

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  • Christiansen, Marcus C.
  • Furrer, Christian

Abstract

In multi-state life insurance, as-if-Markov modeling has recently been suggested as an alternative to Markov modeling in case of deterministic sojourn and transition payments. Incidental policyholder behavior, on the other hand, gives rise to duration-dependent payments in the form of so-called scaled payments. The goal of this paper is to establish as-if-Markov modeling also for scaled payments. To this end, we employ change of measure techniques to transfer the added complexity from the payments to an auxiliary probabilistic model. Based hereon, we show how to compute the accumulated cash flow by solving a system of equations comparable to Kolmogorov's forward equations for Markov chains, but with the transition rates replaced by certain forward transition rates related to the auxiliary probabilistic model. Finally, we provide feasible landmark estimators for these auxiliary forward transition rates subject to entirely random right-censoring.

Suggested Citation

  • Christiansen, Marcus C. & Furrer, Christian, 2022. "Extension of as-if-Markov modeling to scaled payments," Insurance: Mathematics and Economics, Elsevier, vol. 107(C), pages 288-306.
    • Handle: RePEc:eee:insuma:v:107:y:2022:i:c:p:288-306
    DOI: 10.1016/j.insmatheco.2022.09.001
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    References listed on IDEAS

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    1. Christian Furrer, 2022. "Scaled insurance cash flows: representation and computation via change of measure techniques," Finance and Stochastics, Springer, vol. 26(2), pages 359-382, April.
    2. Norberg, Ragnar, 2010. "Forward mortality and other vital rates -- Are they the way forward?," Insurance: Mathematics and Economics, Elsevier, vol. 47(2), pages 105-112, October.
    3. Kristian Buchardt & Christian Furrer & Mogens Steffensen, 2019. "Forward transition rates," Finance and Stochastics, Springer, vol. 23(4), pages 975-999, October.
    4. Guibert, Quentin & Planchet, Frédéric, 2018. "Non-parametric inference of transition probabilities based on Aalen–Johansen integral estimators for acyclic multi-state models: application to LTC insurance," Insurance: Mathematics and Economics, Elsevier, vol. 82(C), pages 21-36.
    5. Quentin Guibert & Frédéric Planchet, 2018. "Non-parametric inference of transition probabilities based on Aalen–Johansen integral estimators for acyclic multi-state models: application to LTC insurance," Post-Print hal-02055156, HAL.
    6. Datta, Somnath & Satten, Glen A., 2001. "Validity of the Aalen-Johansen estimators of stage occupation probabilities and Nelson-Aalen estimators of integrated transition hazards for non-Markov models," Statistics & Probability Letters, Elsevier, vol. 55(4), pages 403-411, December.
    7. Marcus C. Christiansen & Christian Furrer, 2020. "Dynamics of state-wise prospective reserves in the presence of non-monotone information," Papers 2003.02173, arXiv.org, revised Jan 2021.
    8. Christiansen, Marcus C. & Djehiche, Boualem, 2020. "Nonlinear reserving and multiple contract modifications in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 93(C), pages 187-195.
    9. Christiansen, Marcus C. & Furrer, Christian, 2021. "Dynamics of state-wise prospective reserves in the presence of non-monotone information," Insurance: Mathematics and Economics, Elsevier, vol. 97(C), pages 81-98.
    10. Kristian Buchardt & Thomas Møller, 2015. "Life Insurance Cash Flows with Policyholder Behavior," Risks, MDPI, vol. 3(3), pages 1-28, July.
    11. K. Buchardt & C. Furrer & M. Steffensen, 2018. "Forward transition rates," Papers 1811.00137, arXiv.org, revised Apr 2019.
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