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- Title
Actuarial Valuation and Hedging of Life Insurance Liabilities in the Presence of Stochastic Mortality Risk under the Locally Risk-Minimizing Hedging Approach.
- Authors
El Farissi, Mohamed; Eddahbi, Mhamed; Goumar, Ali
- Abstract
The paper examines the valuation and hedging of life insurance obligations in the presence of mortality risk using the local risk-minimizing hedging approach. Roughly speaking, it is assumed that the lifetime of policyholders in an insurance portfolio is modeled by a point process whose stochastic intensity is controlled by a diffusion process. The stock price process is assumed to be a regime-switching Lévy process with non-zero regime-switching drift, where the parameters are assumed to depend on the economic states. Using the Föllmer–Schweizer decomposition, the main valuation and hedging results for a conditional payment process are determined. Some specific situations have been considered in which the local risk-minimizing strategies for a stream of liability payments or a unit-linked contract are presented.
- Subjects
LIFE insurance; LIABILITY insurance; HEDGING (Finance); LEVY processes; VALUATION
- Publication
Symmetry (20738994), 2024, Vol 16, Issue 2, p165
- ISSN
2073-8994
- Publication type
Article
- DOI
10.3390/sym16020165