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Article: Phase-Type Models in Life Insurance: Fitting and Valuation of Equity-Linked Benefits

TitlePhase-Type Models in Life Insurance: Fitting and Valuation of Equity-Linked Benefits
Authors
Keywordsgeneralized Coxian distribution
EM algorithm
guaranteed minimum death benefit
high-water benefit
jump diffusion
Issue Date2019
PublisherMDPI AG. The Journal's web site is located at http://www.mdpi.com/journal/risks
Citation
Risks, 2019, v. 7 n. 1, p. article no. 17 How to Cite?
AbstractPhase-type (PH) distributions are defined as distributions of lifetimes of finite continuous-time Markov processes. Their traditional applications are in queueing, insurance risk, and reliability, but more recently, also in finance and, though to a lesser extent, to life and health insurance. The advantage is that PH distributions form a dense class and that problems having explicit solutions for exponential distributions typically become computationally tractable under PH assumptions. In the first part of this paper, fitting of PH distributions to human lifetimes is considered. The class of generalized Coxian distributions is given special attention. In part, some new software is developed. In the second part, pricing of life insurance products such as guaranteed minimum death benefit and high-water benefit is treated for the case where the lifetime distribution is approximated by a PH distribution and the underlying asset price process is described by a jump diffusion with PH jumps. The expressions are typically explicit in terms of matrix-exponentials involving two matrices closely related to the Wiener-Hopf factorization, for which recently, a Lévy process version has been developed for a PH horizon. The computational power of the method of the approach is illustrated via a number of numerical examples.
Persistent Identifierhttp://hdl.handle.net/10722/272969
ISSN
2023 Impact Factor: 2.0
2023 SCImago Journal Rankings: 0.403
ISI Accession Number ID

 

DC FieldValueLanguage
dc.contributor.authorAsmussen, S-
dc.contributor.authorLaub, PJ-
dc.contributor.authorYang, H-
dc.date.accessioned2019-08-06T09:20:06Z-
dc.date.available2019-08-06T09:20:06Z-
dc.date.issued2019-
dc.identifier.citationRisks, 2019, v. 7 n. 1, p. article no. 17-
dc.identifier.issn2227-9091-
dc.identifier.urihttp://hdl.handle.net/10722/272969-
dc.description.abstractPhase-type (PH) distributions are defined as distributions of lifetimes of finite continuous-time Markov processes. Their traditional applications are in queueing, insurance risk, and reliability, but more recently, also in finance and, though to a lesser extent, to life and health insurance. The advantage is that PH distributions form a dense class and that problems having explicit solutions for exponential distributions typically become computationally tractable under PH assumptions. In the first part of this paper, fitting of PH distributions to human lifetimes is considered. The class of generalized Coxian distributions is given special attention. In part, some new software is developed. In the second part, pricing of life insurance products such as guaranteed minimum death benefit and high-water benefit is treated for the case where the lifetime distribution is approximated by a PH distribution and the underlying asset price process is described by a jump diffusion with PH jumps. The expressions are typically explicit in terms of matrix-exponentials involving two matrices closely related to the Wiener-Hopf factorization, for which recently, a Lévy process version has been developed for a PH horizon. The computational power of the method of the approach is illustrated via a number of numerical examples.-
dc.languageeng-
dc.publisherMDPI AG. The Journal's web site is located at http://www.mdpi.com/journal/risks-
dc.relation.ispartofRisks-
dc.rightsThis work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.-
dc.subjectgeneralized Coxian distribution-
dc.subjectEM algorithm-
dc.subjectguaranteed minimum death benefit-
dc.subjecthigh-water benefit-
dc.subjectjump diffusion-
dc.titlePhase-Type Models in Life Insurance: Fitting and Valuation of Equity-Linked Benefits-
dc.typeArticle-
dc.identifier.emailYang, H: hlyang@hku.hk-
dc.identifier.authorityYang, H=rp00826-
dc.description.naturepublished_or_final_version-
dc.identifier.doi10.3390/risks7010017-
dc.identifier.scopuseid_2-s2.0-85064846418-
dc.identifier.hkuros299912-
dc.identifier.volume7-
dc.identifier.issue1-
dc.identifier.spagearticle no. 17-
dc.identifier.epagearticle no. 17-
dc.identifier.isiWOS:000464134400001-
dc.publisher.placeSwitzerland-
dc.identifier.issnl2227-9091-

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