EconPapers    
Economics at your fingertips  
 

Indifference pricing of pure endowments via BSDEs under partial information

Claudia Ceci, Katia Colaneri and Alessandra Cretarola

Papers from arXiv.org

Abstract: In this paper we investigate the pricing problem of a pure endowment contract when the insurer has a limited information on the mortality intensity of the policyholder. The payoff of this kind of policies depends on the residual life time of the insured as well as the trend of a portfolio traded in the financial market, where investments in a riskless asset, a risky asset and a longevity bond are allowed. We propose a modeling framework that takes into account mutual dependence between the financial and the insurance markets via an observable stochastic process, which affects the risky asset and the mortality index dynamics. Since the market is incomplete due to the presence of basis risk, in alternative to arbitrage pricing we use expected utility maximization under exponential preferences as evaluation approach, which leads to the so-called indifference price. Under partial information this methodology requires filtering techniques that can reduce the original control problem to an equivalent problem in complete information. Using stochastic dynamics techniques, we characterize the indifference price of the insurance derivative via the solutions of suitable backward stochastic differential equations.

New Economics Papers: this item is included in nep-ias, nep-rmg and nep-upt
Date: 2018-03, Revised 2019-01
References: View references in EconPapers View complete reference list from CitEc
Citations Track citations by RSS feed

Downloads: (external link)
http://arxiv.org/pdf/1804.00223 Latest version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1804.00223

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().

 
Page updated 2019-01-18
Handle: RePEc:arx:papers:1804.00223