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Hybrid life insurance valuation based on a new standard deviation premium principle in a stochastic interest rate framework

Author

Listed:
  • Belhouari, Oussama

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

  • Deelstra, Griselda
  • Devolder, Pierre

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

Abstract

In a complete arbitrage-free financial market, financial products are valued with the risk-neutral measure and these products are completely hedgeable. In life insurance, the approach is different as the valuation is based on an insurance premium principle which includes a safety loading. The insurer reduces the risk by pooling a vast number of independent risks. In our framework, we suggest valuations of a class of products that are dependent on both mortality and financial risk, namely hybrid life products. The main contribution of this paper is to present a generalized standard deviation premium principle in a stochastic interest rate framework, and to integrate it in different valuation operators suggested in the literature. We illustrate our methods with a classical application, namely a Pure Endowment with profit. Several numerical results are presented, and an extensive sensitivity analysis is included.

Suggested Citation

  • Belhouari, Oussama & Deelstra, Griselda & Devolder, Pierre, 2024. "Hybrid life insurance valuation based on a new standard deviation premium principle in a stochastic interest rate framework," LIDAM Reprints ISBA 2024024, Université catholique de Louvain, Institute of Statistics, Biostatistics and Actuarial Sciences (ISBA).
    • Handle: RePEc:aiz:louvar:2024024
    DOI: https://doi.org/10.1007/s13385-024-00396-2
    Note: In: European Actuarial Journal, 2024
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