093078 (E51) Interest rate risk management: Developments in interest rate term structure modelling for risk management and valuation of interest-rate-dependent cash flows : Ang A., Sherris M., North American Actuarial Journal, Vol. 1, Nr. 2, 1997, pp. 1–26
- Publisher
- Elsevier Science
- Year
- 1997
- Tongue
- English
- Weight
- 86 KB
- Volume
- 20
- Category
- Article
- ISSN
- 0167-6687
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✦ Synopsis
A unit-linked life insurance contract is a contract where the insurance benefits depend on the price of some specific traded stocks. We consider a model describing the uncertainty of the financial market and a portfolio of insured individuals simultaneously. Due to incompleteness the insurance claims cannot be hedged completely by trading stocks and bonds only, leaving some risk to insurer. The theory of risk-minimization is briefly reviewed and applied after a change of measure. Risk-minimizing trading strategies and the associated intrinsic risk processes are determined for different types of unit-linked contracts. By extending the model to the situation where certain reinsurance contracts on the insured lives traded, the direct insurer can eliminate the risk completely. The corresponding self-financing strategies are determined.