A Unified Framework for Insurance Demand and Mortality Immunization
To assess the mortality/longevity risk for the insured and insurers, the authors of the article choose the stochastic model by \textit{A. J. G. Cairns} et al. [``A two-factor model for stochastic mortality with parameter uncertainty: theory and calibration, J. Risk. Insur. 73, No. 4, 687--718 (2006; \url{doi:10.1111/j.1539-6975.2006.00195.x})] described by the following equation \N\[\Nq_{x+t}=\frac{\mathrm{e}^{A_1(t+1)+A_2(t+1)(x+t)}}{1+\mathrm{e}^{A_1(t+1)+A_2(t+1)(x+t)}}, \N\]\Nwhere \(q_{x+t}\) represents the one-year death probability for an individual aged \(x+t\) in year \(t\), and \(A(t)=(A_1(t),A_2(t))\) is a two-dimensional random walk with drift: \N\[\NA(t)=A(t)+\mu+C\, Z(t+1).\N\]\NHere \(\mu=(\mu_1,\mu_2)^{T}\) is a constant parameter vector, \(C\) is a \(2\times 2\) constant upper triangular Cholesky square root matrix of a covariance matrix, and \(Z\) is a stochastic process represented by a two-dimensional standard normal random variable.\N\NAssuming that the population lives according to the above model, the article's authors jointly examine the demand and supply of whole life insurance and deferred life annuities and connect them in a market equilibrium framework. On the one hand, an insurer determines its optimal product mix by minimizing the CVaR of the loss proportion in its lines of business. On the other hand, consumers decide their optimal insurance demand by maximizing their lifetime expected utility. By matching demand and supply, the article's authors derive the prices and quantities of insurance products that clear the market.
- Actuarial applications of the linear hazard transform in mortality immunization
- Annuitization and asset allocation
- Applications of mortality durations and convexities in natural hedges
- Delta-gamma hedging of mortality and interest rate risk
- Dynamic asset allocation when bequests are luxury goods
- Myopic Loss Aversion and the Equity Premium Puzzle
- Natural hedging of life and annuity mortality risks
- On the mortality/longevity risk hedging with mortality immunization
- On the optimal product mix in life insurance companies using conditional value at risk
- On the Stability of the Competitive Equilibrium, I
- On the Stability of the Competitive Equilibrium, II
- Optimal life insurance and annuity demand under hyperbolic discounting when bequests are luxury goods
- Practical partial equilibrium framework for pricing of mortality-linked instruments in continuous time
- Prospect theory and asset prices
- Some Remarks on the Equilibria of Economic Systems
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