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Valuation of mixed life insurance contracts under stochastic correlated mortality and interest rates

Author

Listed:
  • Hanna, Vanessa

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

  • Devolder, Pierre

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

Abstract

The need to find a good balance between attractive returns and long-term guarantees has motivated the development of hybrid life insurance products. In these contracts, the premium payments are distributed between a participating and a unit-linked fund, where an additional guarantee fee is applied to the unit-linked return in order to increase the investment guarantee of the participating fund. Moreover, the traditional pricing approach in life insurance is based on models for the financial elements and the mortality elements without any correlations between them. However, recent trends, such as the recent COVID-19 pandemic or the effect of ageing on stock market preferences, motivate us to account for the correlation between changes in demographic trends and the value of financial assets. The purpose of this paper is to price the mixed insurance contract based on longevity and to propose a multi-dimensional approach to explicitly studying the dependence between financial and mortality risks in a joint stochastic continuous time model of interest rates, stock returns, and mortality.

Suggested Citation

  • Hanna, Vanessa & Devolder, Pierre, 2023. "Valuation of mixed life insurance contracts under stochastic correlated mortality and interest rates," LIDAM Reprints ISBA 2023015, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvar:2023015
    DOI: https://doi.org/10.1007/s13385-023-00354-4
    Note: In: European Actuarial Journal, 2023
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    Cited by:

    1. Hainaut, Donatien & Devineau, Laurent, 2024. "Participating life insurances in an equity-Libor Market Model," LIDAM Discussion Papers ISBA 2024015, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).

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