Pricing participating policies under the Meixner process and stochastic volatility

Brett Shanahan, Farzad Alavi Fard and John van der Hoek

Scandinavian Actuarial Journal, 2017, vol. 2017, issue 7, 559-583

Abstract: We propose a model for the valuation of participating life insurance products under the Meixner process, which belongs to the family of semi-heavy tailed processes. This particular model assumption is extremely desirable as it captures the stylised features of the return distribution, with existing moment generating functions. The highlight of the paper is the analytical solution derived for minimising the relative entropy between the historical and risk-neutral measures, when driving a pricing kernel. Further, we capture the stochastic volatility effect using an accurate polynomial approximation technique. Finally, to highlight the practical applications, we conduct a simulation experiment.

Date: 2017
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DOI: 10.1080/03461238.2016.1193557

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