Forward transition rates

Kristian Buchardt, Christian Furrer () and Mogens Steffensen
Additional contact information
Kristian Buchardt: PFA Pension
Christian Furrer: PFA Pension
Mogens Steffensen: University of Copenhagen

Finance and Stochastics, 2019, vol. 23, issue 4, No 6, 975-999

Abstract: Abstract The idea of forward rates stems from interest rate theory. It has natural connotations to transition rates in multi-state models. The generalisation from the forward mortality rate in a survival model to multi-state models is non-trivial and several definitions have been proposed. We establish a theoretical framework for the discussion of forward rates. Furthermore, we provide a novel definition with its own logic and merits and compare it with the proposals in the literature. The definition turns the Kolmogorov forward equations inside out by interchanging the transition probabilities with the transition intensities as the object to be calculated.

Keywords: Forward rates; Doubly stochastic Markov models; Life insurance; Kolmogorov forward equations; 60J28; 60J75; 60J27; 91B30; 91G40 (search for similar items in EconPapers)
JEL-codes: G12 G22 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (4)

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DOI: 10.1007/s00780-019-00397-0

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