EconPapers    
Economics at your fingertips  
 

Endowment Assurance Products: Effectiveness of Risk-Minimizing Strategies under Model Risk

An Chen () and Mahayni Antje B.
Additional contact information
Mahayni Antje B.: University of Duisburg-Essen, Germany

Asia-Pacific Journal of Risk and Insurance, 2008, vol. 2, issue 2, 1-29

Abstract: This paper analyzes and discusses the effects of model misspecification associated with both interest rate and mortality risk on the hedging decisions of insurance companies. We consider hedging strategies in different instruments (zero bonds) which are risk- (variance-) minimizing with respect to an assumed model. In this case, the associated expected costs and the variance of the costs are the same for all strategies. While the introduction of model risk, i.e. a deviation of assumed from true models, has the same effect on the expected costs, this is not true with respect to the variance. It turns out that the choice of hedging instruments has a crucial impact on the robustness of the strategies. In addition, the results of the paper can be used to emphasize the necessity to use a combined hedging model. In terms of robust hedging, a separate specification of interest rate model and mortality model is inconvenient, even in the case that interest rate and mortality are assumed to be independent.

Date: 2008
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.degruyter.com/view/j/apjri.2008.2.2/ap ... .1021.xml?format=INT (text/html)
For access to full text, subscription to the journal or payment for the individual article is required.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bpj:apjrin:v:2:y:2008:i:2:n:4

Ordering information: This journal article can be ordered from
https://www.degruyter.com/view/j/apjri

Access Statistics for this article

Asia-Pacific Journal of Risk and Insurance is currently edited by Michael R. Powers

More articles in Asia-Pacific Journal of Risk and Insurance from De Gruyter
Bibliographic data for series maintained by Peter Golla ().

 
Page updated 2021-03-28
Handle: RePEc:bpj:apjrin:v:2:y:2008:i:2:n:4