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Hedging unit‐linked life insurance contracts in a financial market driven by shot‐noise processes

Hedging unit‐linked life insurance contracts in a financial market driven by shot‐noise processes We consider the risk‐minimizing hedging problem for unit‐linked life insurance in a financial market driven by a shot‐noise process. Because the financial market is incomplete, the insurance claims cannot be hedged completely by trading stocks and bonds only, leaving some risk to the insurer. The theory of ((pseudo) locally) risk‐minimization is applied after a change of measure. Then the risk‐minimizing trading strategies and the associated intrinsic risk processes are determined for two types of unit‐linked contracts represented by the pure endowment and the term insurance. Copyright © 2009 John Wiley & Sons, Ltd. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Applied Stochastic Models in Business and Industry Wiley

Hedging unit‐linked life insurance contracts in a financial market driven by shot‐noise processes

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Publisher
Wiley
Copyright
Copyright © 2009 John Wiley & Sons, Ltd.
ISSN
1524-1904
eISSN
1526-4025
DOI
10.1002/asmb.807
Publisher site
See Article on Publisher Site

Abstract

We consider the risk‐minimizing hedging problem for unit‐linked life insurance in a financial market driven by a shot‐noise process. Because the financial market is incomplete, the insurance claims cannot be hedged completely by trading stocks and bonds only, leaving some risk to the insurer. The theory of ((pseudo) locally) risk‐minimization is applied after a change of measure. Then the risk‐minimizing trading strategies and the associated intrinsic risk processes are determined for two types of unit‐linked contracts represented by the pure endowment and the term insurance. Copyright © 2009 John Wiley & Sons, Ltd.

Journal

Applied Stochastic Models in Business and IndustryWiley

Published: Sep 1, 2010

References