Discrete-time local risk minimization of payment processes and applications to equity-linked life-insurance contracts

Jérôme Pansera

Insurance: Mathematics and Economics, 2012, vol. 50, issue 1, 1-11

Abstract: We develop a theory of local risk minimization for payment processes in discrete time, and apply this theory to the pricing and hedging of equity-linked life-insurance contracts. Thus, we extend the work of Møller (2001a) in several directions: from risk minimization (which is done under a martingale measure) to local risk minimization (which is done under an arbitrary measure), from single claims to payment processes, from complete financial markets to possibly incomplete financial markets, from a single risky asset to several risky assets, and from finite state spaces to general state spaces.

Keywords: Local risk minimization; Locally risk-minimizing hedging strategy; Minimal martingale measure; Incomplete market; Enlargement of filtration; Equity-indexed annuity; Unit-linked life insurance (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:50:y:2012:i:1:p:1-11

DOI: 10.1016/j.insmatheco.2011.10.001

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