Variance and interest rate risk in unit-linked insurance policies

David R. Ba\~nos, Marc Lagunas-Merino and Salvador Ortiz-Latorre

Papers from arXiv.org

Abstract: One of the risks derived from selling long term policies that any insurance company has, arises from interest rates. In this paper we consider a general class of stochastic volatility models written in forward variance form. We also deal with stochastic interest rates to obtain the risk-free price for unit-linked life insurance contracts, as well as providing a perfect hedging strategy by completing the market. We conclude with a simulation experiment, where we price unit-linked policies using Norwegian mortality rates. In addition we compare prices for the classical Black-Scholes model against the Heston stochastic volatility model with a Vasicek interest rate model.

Date: 2020-06
New Economics Papers: this item is included in nep-ias, nep-ore and nep-rmg
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:2006.14833

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