Asset Management and Surplus Distribution Strategies in Life Insurance: An Examination with Respect to Risk Pricing and Risk Measurement
Journal
Insurance: Mathematics and Economics
ISSN
0167-6687
ISSN-Digital
1873-5959
Type
journal article
Date Issued
2008-04
Author(s)
Abstract
In this paper, we investigate the impact of different asset management and surplus distribution strategies in life insurance on risk-neutral pricing and shortfall risk. In general, these feedback mechanisms affect the contract's payoff and hence directly influence pricing and risk measurement. To isolate the effect of such strategies on shortfall risk, we calibrate contract parameters so that the compared contracts have the same market value and same default-value-to-liability ratio. This way, the fair valuation method is extended since, in addition to the contract's market value, the default put option value is fixed. We then compare shortfall probability and expected shortfall and show the substantial impact of different management mechanisms acting on the asset and liability side.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
42
Number
2
Start page
839
End page
849
Pages
11
Subject(s)
Division(s)
Eprints ID
46873