Tax- and expense-modified risk-minimization for insurance payment processes

DOI10.1080/03461238.2020.1790413MaRDI QIDQ5140642zbMATH OpenOpenAlexFDO

Authors Kristian Buchardt, Christian Furrer, Thomas Møller

Publication date 16 December 2020

Published in Scandinavian Actuarial Journal (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1907.04230

zbMATH Keywords

Galtchouk-Kunita-Watanabe decompositionincomplete marketintrinsic value processmarket consistent valuationquadratic hedging

Mathematics Subject Classification ID

Macroeconomic theory (monetary models, models of taxation) (91B64) Actuarial mathematics (91G05)

Abstract: We study the problem of determining risk-minimizing investment strategies for insurance payment processes in the presence of taxes and expenses. We consider the situation where taxes and expenses are paid continuously and symmetrically and introduce the concept of tax- and expense-modified risk-minimization. Risk-minimizing strategies in the presence of taxes and expenses are derived and linked to Galtchouk-Kunita-Watanabe decompositions associated with modified versions of the original payment processes. Furthermore, we show equivalence to an alternative approach involving an artificial market consisting of after-tax and after-expense assets, and we establish a type of consistency with classic risk-minimization. Finally, a case study involving classic multi-state life insurance payments in combination with a bond market exemplifies the results.

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Cited in

(2)

• Phase-type representations of stochastic interest rates with applications to life insurance
• Non-parametric estimators of scaled cash flows

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