Phase-type representations of stochastic interest rates with applications to life insurance
From MaRDI portal
(Redirected from Publication:6201518)
Abstract: The purpose of the present paper is to incorporate stochastic interest rates into a matrix-approach to multi-state life insurance, where formulas for reserves, moments of future payments and equivalence premiums can be obtained as explicit formulas in terms of product integrals or matrix exponentials. To this end we consider the Markovian interest model, where the rates are piecewise deterministic (or even constant) in the different states of a Markov jump process, and which is shown to integrate naturally into the matrix framework. The discounting factor then becomes the price of a zero-coupon bond which may or may not be correlated with the biometric insurance process. Another nice feature about the Markovian interest model is that the price of the bond coincides with the survival function of a phase-type distributed random variable. This, in particular, allows for calibrating the Markovian interest rate models using a maximum likelihood approach to observed data (prices) or to theoretical models like e.g. a Vasicek model. Due to the denseness of phase-type distributions, we can approximate the price behaviour of any zero-coupon bond with interest rates bounded from below by choosing the number of possible interest rate values sufficiently large. For observed data models with few data points, lower dimensions will usually suffice, while for theoretical models the dimensionality is only a computational issue.
Recommendations
Cites work
- A time‐continuous markov chain interest model with applications to insurance
- Anomalous PDEs in Markov chains: domains of validity and numerical solutions
- Cash flows and policyholder behaviour in the semi-Markov life insurance setup
- Continuously monitored barrier options under Markov processes
- Dependent interest and transition rates in life insurance
- Differential equations for moments of present values in life insurance
- Fitting inhomogeneous phase‐type distributions to data: the univariate and the multivariate case
- scientific article; zbMATH DE number 3155846 (Why is no real title available?)
- scientific article; zbMATH DE number 5151672 (Why is no real title available?)
- scientific article; zbMATH DE number 1183924 (Why is no real title available?)
- scientific article; zbMATH DE number 3783337 (Why is no real title available?)
- Interest rate models -- theory and practice. With smile, inflation and credit
- Markov Chain Models in Life Insurance
- Mathematics of financial markets
- Matrix representations of life insurance payments
- Matrix-Exponential Distributions in Applied Probability
- On the Sensitivity of Premiums and Reserves to Changes in Valuation Elements
- Reserves in Life and Pension Insurance
- Risk and insurance. A graduate text
- Solutions of ordinary differential equations as limits of pure jump markov processes
- Stochastic models in life insurance. Translation from the 2nd German edition.
- Strong approximation theorems for density dependent Markov chains
- Tax- and expense-modified risk-minimization for insurance payment processes
- Thiele's differential equation with stochastic interest of diffusion type
- Yield curve shapes of Vašíček interest rate models, measure transformations and an application for the simulation of pension products
This page was built for publication: Phase-type representations of stochastic interest rates with applications to life insurance
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q6201518)
