scholarly journals EFFICIENT HEDGING AND PRICING OF EQUITY-LINKED LIFE INSURANCE CONTRACTS ON SEVERAL RISKY ASSETS

2008 ◽  
Vol 11 (03) ◽  
pp. 295-323 ◽  
Author(s):  
ALEXANDER MELNIKOV ◽  
YULIYA ROMANYUK
Keyword(s):  
Life Insurance ◽  
Financial Risk ◽  
Risk Preference ◽  
Financial Assets ◽  
Insurance Risk ◽  
Risky Assets ◽  
Insurance Contracts ◽  
Maturity Date ◽  
Efficient Hedging ◽  
Probabilistic Result

The paper uses the efficient hedging methodology in order to optimally price and hedge equity-linked life insurance contracts whose payoff depends on the performance of several risky assets. In particular, we consider a policy which pays the maximum of the values of n risky assets at some maturity date T, provided that the policyholder survives to T. Such contracts incorporate financial risk, which stems from the uncertainty about future prices of the underlying financial assets, and insurance risk, which arises from the policyholder's mortality. We show how efficient hedging can be used to minimize expected losses from imperfect hedging under a particular risk preference of the hedger. We also prove a probabilistic result, which allows one to calculate analytic pricing formulas for equity-linked payoffs with n risky assets. To illustrate its use, explicit formulas are given for optimal prices and expected hedging losses for payoffs with two risky assets. Numerical examples highlighting the implications of efficient hedging for the management of financial and insurance risks of equity-linked life insurance policies are also provided.

scholarly journals On Valuation and Risk Management at the Interface of Insurance and Finance

2002 ◽  
Vol 8 (4) ◽  
pp. 787-827 ◽  
Author(s):  
T. Møller
Keyword(s):  
Financial Markets ◽  
Life Insurance ◽  
Financial Risk ◽  
Insurance Risk ◽  
Indifference Pricing ◽  
Insurance Contracts ◽  
The Past ◽  
Market Shares ◽  
Quadratic Hedging ◽  
Mean Variance

ABSTRACTThis paper reviews methods for hedging and valuation of insurance claims with an inherent financial risk, with special emphasis on quadratic hedging approaches and indifference pricing principles and their applications in insurance. It thus addresses aspects of the interplay between finance and insurance, an area which has gained considerable attention during the past years, in practice as well as in theory. Products combining insurance risk and financial risk have gained considerable market shares. Special attention is paid to unit-linked life insurance contracts, and it is demonstrated how these contracts can be valued and hedged by using traditional methods as well as more recent methods from incomplete financial markets such as risk-minimisation, mean-variance hedging, super-replication and indifference pricing with mean-variance utility functions.

scholarly journals The Reduction of Initial Reserves Using the Optimal Reinsurance Chains in Non-Life Insurance

Mathematics ◽  
2021 ◽  
Vol 9 (12) ◽  
pp. 1350
Author(s):  
Galina Horáková ◽  
František Slaninka ◽  
Zsolt Simonka
Keyword(s):  
Life Insurance ◽  
Continuous Time ◽  
Ruin Probability ◽  
Proportional Reinsurance ◽  
Insurance Risk ◽  
Optimal Reinsurance ◽  
Insurance Contracts ◽  
Time Period ◽  
Different Types ◽  
Capital Injections

The aim of the paper is to propose, and give an example of, a strategy for managing insurance risk in continuous time to protect a portfolio of non-life insurance contracts against unwelcome surplus fluctuations. The strategy combines the characteristics of the ruin probability and the values VaR and CVaR. It also proposes an approach for reducing the required initial reserves by means of capital injections when the surplus is tending towards negative values, which, if used, would protect a portfolio of insurance contracts against unwelcome fluctuations of that surplus. The proposed approach enables the insurer to analyse the surplus by developing a number of scenarios for the progress of the surplus for a given reinsurance protection over a particular time period. It allows one to observe the differences in the reduction of risk obtained with different types of reinsurance chains. In addition, one can compare the differences with the results obtained, using optimally chosen parameters for each type of proportional reinsurance making up the reinsurance chain.

scholarly journals COMPUTATION OF BONUS IN MULTI-STATE LIFE INSURANCE

2021 ◽  
pp. 1-41
Author(s):  
Jamaal Ahmad ◽  
Kristian Buchardt ◽  
Christian Furrer
Keyword(s):  
Life Insurance ◽  
Financial Risk ◽  
Insurance Risk ◽  
Numerical Example ◽  
Market Values ◽  
The Past ◽  
Bonus Payments ◽  
Insurance Business

Abstract We consider computation of market values of bonus payments in multi-state with-profit life insurance. The bonus scheme consists of additional benefits bought according to a dividend strategy that depends on the past realization of financial risk, the current individual insurance risk, the number of additional benefits currently held, and so-called portfolio-wide means describing the shape of the insurance business. We formulate numerical procedures that efficiently combine simulation of financial risk with classic methods for the outstanding insurance risk. Special attention is given to the case where the number of additional benefits bought only depends on the financial risk. Methods and results are illustrated via a numerical example.

scholarly journals Invest As I Say, Not As I Do? Gender Dif-ferences In Financial Risk Preferences

2011 ◽  
Vol 1 (1) ◽  
Author(s):  
Nancy Ammon Jianakoplos
Keyword(s):  
Gender Differences ◽  
Asset Allocation ◽  
Financial Risk ◽  
Risk Preferences ◽  
Financial Risks ◽  
Financial Assets ◽  
Survey Of Consumer Finances ◽  
Risky Assets ◽  
Consumer Finances ◽  
Using Data

This paper examines gender differences in stated versus observed financial risk preferences. The responses of women versus men to a question regarding financial risk preferences are compared to the proportion of risky assets held in their portfolios using data from the 1995 Survey of Consumer Finances. The data show that women are more likely to express an unwillingness to take financial risks. Stated financial risk preferences are found to be consistent with observed risk preferences at the ordinal, but not the quantitative, level. Contradicting their stated risk preferences, risky assets constitute, on average, one-third of the financial assets of households that indicate they are unwilling to take any financial risks. Financial planners and advisers frequently use a clients expressed willingness to take on risk as an important determinant in asset allocation recommendations. Consistent gender differences in these responses, in addition to inconsistencies between the clients stated risk preferences and observed portfolio allocation, may lead advisers to make inappropriate recommendations.

scholarly journals Developing the Underwriting Process in Life Insurance

2020 ◽  
Vol 5 (6) ◽  
Author(s):  
Yuldashev Obiddin Toshmurzaevich
Keyword(s):  
Organizational Development ◽  
Life Insurance ◽  
Financial Management ◽  
Economic Feasibility ◽  
Insurance Risk ◽  
Budget Management ◽  
Insurance Contracts ◽  
Life Insurer ◽  
Economic Nature

Underwriting is the main factor affecting the reliability, stability of the organizational development of the life insurer and determining the quality of financial management, strategic planning, budget management of the life insurer, the economic feasibility of the life insurance process, the adequacy of the life insurer's operational management system. Underwriting is the main business process in insurance organizations and provides for the assessment and management of insurance risk accepted for insurance. This study focuses on the economic nature of underwriting, the approaches of scientists to it, the specifics of life insurance underwriting, types of life insurance underwriting and the process of their implementation, as well as directions and stages of underwriting in life insurance. The article also substantiates that digitalization of the underwriting process in life insurance is an important factor in its development. In concluding life insurance contracts, regardless of the type of insurance product, according to the author, underwriting should be carried out gradually in several directions.

EFFICIENT HEDGING FOR DEFAULTABLE SECURITIES AND ITS APPLICATION TO EQUITY-LINKED LIFE INSURANCE CONTRACTS

2015 ◽  
Vol 18 (07) ◽  
pp. 1550047
Author(s):  
ALEXANDER MELNIKOV ◽  
AMIR NOSRATI
Keyword(s):  
Life Insurance ◽  
Closed Form Solution ◽  
Form Solution ◽  
Recovery Rates ◽  
Insurance Contracts ◽  
Black Scholes ◽  
Simple Alternative ◽  
Defaultable Securities ◽  
Efficient Hedging ◽  
Hedging Problem

The paper deals with efficient hedging problem for defaultable securities with multiple default times and nonzero recovery rates. First, we convert the efficient hedging problem into a Neyman–Pearson problem with composite hypothesis against a simple alternative. Then we apply nonsmooth convex duality to provide a solution in the framework of a “defaultable” Black–Scholes model. Moreover, in the case of zero recovery rates, we find a closed form solution for the problem. As an application, it is shown how to use such type of results in pricing equity-linked life insurance contracts. The results are also demonstrated by some numerical examples.

scholarly journals Mathematical Risk Modeling: an Application in Three Cases of Insurance Contracts

2019 ◽  
Vol 8 (6) ◽  
pp. 01-10
Author(s):  
Ramzi Drissi ◽  
Keyword(s):  
Life Insurance ◽  
Financial Risk ◽  
General Definition ◽  
Risk Modeling ◽  
Insurance Contracts ◽  
Lack Of Information ◽  
Different Types ◽  
Definition Of ◽  
Risk Determinants ◽  
Risk Insurance

Risk is often defined as the degree of uncertainty regarding the future. This general definition of risk can be extended to define different types of risks according to the source of the underlying uncertainty. In this context, the objective of this paper is to mathematically model risks in insurance. The choice of methods and techniques that allow the construction of the model significantly influence the responses obtained. We approach these different issues by modeling risks in three base cases: basic insurance of goods, life insurance, and financial risk insurance. Our findings show that risk modeling allowed us to better measure certain events, but did not allow us to predict them accurately due to a lack of information. Therefore, good modeling of the risk determinants makes it possible to modify the probability associated with the occurrence of a risk. While it cannot predict exactly when a risk will occur, it can help make decisions that will reduce its effects. Keywords: Basic insurance, Life insurance, Mathematical models, Financial risk, Biometric function.

STATE REGULATION OF THE FINANCIAL SERVICES MARKET IN UKRAINE

2018 ◽  
Vol 1 (11) ◽  
pp. 30-47
Author(s):  
Lyudmila Nikolayevna Akimova ◽  
Alla Vasilievna Lysachok
Keyword(s):  
Life Insurance ◽  
Financial Services ◽  
Credit Unions ◽  
State Regulation ◽  
The State ◽  
Existing Problems ◽  
Insurance Contracts ◽  
State Pension

The essence of such concepts is “financial service”, “financial ser- vices market”, and “participants of the financial services market”; determined the purpose of state regulation of the financial services market; forms of state regu- lation of the financial services market; financial services that are present in the financial services market; the structure of state regulation bodies of the financial services market in Ukraine is given; The role of state bodies in the regulation of the financial services market was studied; to characterize the regulatory le- gal regulation of the financial services market in Ukraine; the main problems of functioning of the domestic market of financial services are revealed; ways to solve existing problems. It is grounded that the state regulation of financial ser- vices markets consists in the state’s implementation of a set of measures aimed at regulating and overseeing financial services markets to protect the interests of financial services consumers and preventing crisis phenomena. It is concluded that the financial services market is an important element of the development of the economy as a whole, in particular, it concerns not only the state but also society. We must understand that when this market is settled, that is, all bodies that carry out state regulation are competent in their powers, only then will we make informed, effective decisions about the normal and effective functioning of the RFP. It is important that the data of the subjects of control do not overlap, their activities should be fixed at the legislative level. It is also worth bearing in mind that appropriate conditions must be created to create compensatory mecha- nisms in the financial services markets by developing a system for guarante- eing deposits and providing for payments under long-term life insurance contracts, non-state pension provisions, deposits with deposit accounts to credit unions, etс.

Sign in / Sign up

Export Citation Format

Share Document