An Actuarial Approach for Modeling Pandemic Risk

Donatien Hainaut
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Donatien Hainaut: LIDAM Institute of Statistics, Biostatistics and Actuarial Sciences, Université Catholique de Louvain, 5032 Isnes, Belgium

Risks, 2020, vol. 9, issue 1, 1-28

Abstract: In this article, a model for pandemic risk and two stochastic extensions is proposed. It is designed for actuarial valuation of insurance plans providing healthcare and death benefits. The core of our approach relies on a deterministic model that is an efficient alternative to the susceptible-infected-recovered (SIR) method. This model explains the evolution of the first waves of COVID-19 in Belgium, Germany, Italy and Spain. Furthermore, it is analytically tractable for fair pure premium calculation. In a first extension, we replace the time by a gamma stochastic clock. This approach randomizes the timing of the epidemic peak. A second extension consists of adding a Brownian noise and a jump process to explain the erratic evolution of the population of confirmed cases. The jump component allows for local resurgences of the epidemic.

Keywords: SIR; epidemic risk; COVID-19; jump diffusion (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2020
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