Equity-Linked Life Insurances on Maximum of Several Assets

Battulga Gankhuu

Papers from arXiv.org

Abstract: Economic variables play important roles in any economic model, and sudden and dramatic changes exist in the financial market and economy. For this reason, to price and hedge equity-linked life insurance products, including segregated funds and unit-linked life insurance products on maximum price of several assets, this paper introduces Bayesian Markov-Switching Vector Autoregressive (MS-VAR) process. By assuming that a regime-switching process is generated by a homogeneous Markov process and a residual process follows a heteroscedastic model, we obtain joint distribution of endogenous variables and insured's future lifetime random variable under risk-neutral probability probability measure. Using the distribution function, we obtain net single premiums and hedging formulas of the equity-linked life insurance products. An advantage of our model is it depends on economic variables and is not complicated as compared to previous papers.

Date: 2021-11, Revised 2024-09
New Economics Papers: this item is included in nep-cwa, nep-ias, nep-ore and nep-rmg
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