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An actuarial approach for modeling pandemic risk

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  • Hainaut, Donatien

    (Université catholique de Louvain, LIDAM/ISBA, Belgium)

Abstract

This article proposes a model for pandemic risk and two stochastic extensions. It is designed for actuarial valuation of insurance plans providing healthcare and death benefits. The core of our approach relies on a deterministic model that is an efficient alternative to the susceptible-Infected-Recovered (SIR) method. This model explains the evolution of the first waves of COVID-19 in Belgium, Germany, Italy and Spain. Furthermore, it is analytically tractable for fair pure premium calculation. In a first extension, we replace the time by a Gamma stochastic clock. This approach randomizes the timing of the epidemic peak. A second extension consists in adding a Brownian noise and a jump process to explain the erratic evolution of the population of confirmed cases. The jump component allows for local resurgences of the epidemic.

Suggested Citation

  • Hainaut, Donatien, 2020. "An actuarial approach for modeling pandemic risk," LIDAM Discussion Papers ISBA 2020025, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvad:2020025
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    References listed on IDEAS

    as
    1. Hua Chen & Samuel Cox, 2009. "An Option-Based Operational Risk Management Model for Pandemics," North American Actuarial Journal, Taylor & Francis Journals, vol. 13(1), pages 54-76.
    2. Runhuan Feng & Jose Garrido, 2011. "Actuarial Applications of Epidemiological Models," North American Actuarial Journal, Taylor & Francis Journals, vol. 15(1), pages 112-136.
    3. Claude Lefe`vre & Sergey Utev, 1999. "Branching Approximation for the Collective Epidemic Model," Methodology and Computing in Applied Probability, Springer, vol. 1(2), pages 211-228, September.
    4. Na Jia & Lawrence Tsui, 2005. "Epidemic Modelling using Sars as a Case Study," North American Actuarial Journal, Taylor & Francis Journals, vol. 9(4), pages 28-42.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Preparation

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    More about this item

    Keywords

    SIR ; epidemic risk ; COVID-19 ; jump-diffusion;
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