Stochastic interest rate in life insurance: The principle of equivalence revisited

Svein-Arne Persson

Scandinavian Actuarial Journal, 1998, vol. 1998, issue 2, 97-112

Abstract: Based on financial theory, a valuation model—including stochastic interest rates—for traditional life insurance contracts is derived. The interpretation of the principle of equivalence may be revisited in this framework; single premiums are found as expected present values under a risk adjusted probability measure. Using a specific model of the term structure some new formulas for the market value of various life insurance contracts are derived. A partial differential equation for the market values of the assurances, is deduced, corresponding to the traditional Thiele's differential equation of classical actuarial sciences. This equation contains some interesting new terms.

Date: 1998
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DOI: 10.1080/03461238.1998.10413996

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