Variance and Interest Rate Risk in Unit-Linked Insurance Policies

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ID: 118434
2020
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Abstract
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.
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ortiz-latorre2020risksvariance Use this key to autocite in the manuscript while using SciMatic Manuscript Manager or Thesis Manager
Authors David Baños,Marc Lagunas-Merino,Salvador Ortiz-Latorre;David Baños;Marc Lagunas-Merino;Salvador Ortiz-Latorre;
Journal risks
Year 2020
DOI
10.3390/risks8030084
URL
https://sciprofiles.com/publication/view/d82758916707447ed9566d661d312fc6
Keywords
unit-linked policies pure endowment term insurance stochastic volatility models stochastic interest rates

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