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Polynomial Diffusion Models for Life Insurance Liabilities

Francesca Biagini and Yinglin Zhang

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Abstract: In this paper we study the pricing and hedging problem of a portfolio of life insurance products under the benchmark approach, where the reference market is modelled as driven by a state variable following a polynomial diffusion on a compact state space. Such a model guarantees not only the positivity of the OIS short rate and the mortality intensity, but also the possibility of approximating both pricing formula and hedging strategy of a large class of life insurance products by explicit formulas.

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Date: 2016-02, Revised 2016-09
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Published in Insurance Mathematics and Economics 71 (2016) 114-129

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Handle: RePEc:arx:papers:1602.07910