Pricing equity-linked life insurance contracts with multiple risk factors by neural networks

Karim Barigou and Lukasz Delong ()
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Karim Barigou: LSAF - Laboratoire de Sciences Actuarielle et Financière - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon
Lukasz Delong: Warsaw School of Economics - Institut of Econometrics

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Abstract: This paper considers the pricing of equity-linked life insurance contracts with death and survival benefits in a general model with multiple stochastic risk factors: interest rate, equity, volatility, unsystematic and systematic mortality. We price the equity-linked contracts by assuming that the insurer hedges the risks to reduce the local variance of the net asset value process and requires a compensation for the non-hedgeable part of the liability in the form of an instantaneous standard deviation risk margin. The price can then be expressed as the solution of a system of non-linear partial differential equations. We reformulate the problem as a backward stochastic differential equation with jumps and solve it numerically by the use of efficient neural networks. Sensitivity analysis is performed with respect to initial parameters and an analysis of the accuracy of the approximation of the true price with our neural networks is provided.

Keywords: Equity-linked contracts; Neural networks; Stochastic mortality; BSDEs with jumps; Hull-White stochastic interest rates; Heston model (search for similar items in EconPapers)
Date: 2021-11-10
New Economics Papers: this item is included in nep-cmp, nep-cwa, nep-hea, nep-ias and nep-rmg
Note: View the original document on HAL open archive server: https://hal.science/hal-02896141v2
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Published in Journal of Computational and Applied Mathematics, 2021, 404 (113922), ⟨10.1016/j.cam.2021.113922⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-02896141

DOI: 10.1016/j.cam.2021.113922

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