A linear algebraic method for pricing temporary life annuities and insurance policies

P. Date, R. Mamon, L. Jalen and I.C. Wang

Insurance: Mathematics and Economics, 2010, vol. 47, issue 1, 98-104

Abstract: We recast the valuation of annuities and life insurance contracts under mortality and interest rates, both of which are stochastic, as a problem of solving a system of linear equations with random perturbations. A sequence of uniform approximations is developed which allows for fast and accurate computation of expected values. Our reformulation of the valuation problem provides a general framework which can be employed to find insurance premiums and annuity values covering a wide class of stochastic models for mortality and interest rate processes. The proposed approach provides a computationally efficient alternative to Monte Carlo based valuation in pricing mortality-linked contingent claims.

Keywords: Stochastic; interest; rate; models; Stochastic; mortality; models; Annuity; pricing; Insurance; premium (search for similar items in EconPapers)
Date: 2010
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:47:y:2010:i:1:p:98-104

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