Variance and interest rate risk in unit-linked insurance policies

Artikel

One of the risks derived from selling long-term policies that any insurance company has arises from interest rates. In this paper, we consider a general class of stochastic volatility models written in forward variance form. We also deal with stochastic interest rates to obtain the risk-free price for unit-linked life insurance contracts, as well as providing a perfect hedging strategy by completing the market. We conclude with a simulation experiment, where we price unit-linked policies using Norwegian mortality rates. In addition, we compare prices for the classical Black-Scholes model against the Heston stochastic volatility model with a Vasicek interest rate model.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Journal: Risks ; ISSN: 2227-9091 ; Volume: 8 ; Year: 2020 ; Issue: 3 ; Pages: 1-23 ; Basel: MDPI

Classification and Topics

• Classification: Wirtschaft
• Subject: unit-linked policies ; pure endowment ; term insurance ; stochastic volatility models ; stochastic interest rates

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Baños, David ; Lagunas-Merino, Marc ; Ortiz-Latorre, Salvador
• Event: Veröffentlichung
• (who): MDPI
• (where): Basel
• (when): 2020

Further information

• DOI: doi:10.3390/risks8030084
• Handle: http://hdl.handle.net/10419/258037
• Last update: 10.03.2025, 11:46 AM CET