On Fair Valuation of Participating Life Insurance Policies With Regime Switching

Tak Kuen Siu

Chapter 3 in Hidden Markov Models in Finance, 2007, pp 31-43 from Springer

Abstract: Summary We consider the valuation of participating life insurance policies using a regime-switching Esscher transform developed in Elliott, Chan and Siu (2005) when the market values of the reference asset are driven by a Markov-modulated geometric Brownian motion (GBM). We employ the Markov-modulated GBM driven by a continuous-time hidden Markov chain model to describe the impact of the switching behavior of the states of economy on the price dynamics of the reference asset. We also explore the change of measures technique to reduce the dimension of the valuation problem.

Keywords: Participating policies; hidden Markov chain model; regime-switching Esscher transform (search for similar items in EconPapers)
Date: 2007
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DOI: 10.1007/0-387-71163-5_3

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