Stochastic analysis of life insurance surplus

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Stochastic analysis of life insurance surplus

TitleStochastic analysis of life insurance surplus
Publication TypeJournal Article
Year of Publication2014
AuthorsNolde, N, Parker, G
JournalINSURANCE MATHEMATICS & ECONOMICS
Volume56
Pagination1-13
Date PublishedMAY
Type of ArticleArticle
ISSN0167-6687
KeywordsAR(1) process, Distribution function, Insurance surplus, Stochastic rates of return
AbstractThe aim of the paper is to examine the behavior of insurance surplus over time for a portfolio of homogeneous life policies. We distinguish between stochastic and accounting surpluses and derive their first two moments. A recursive formula is proposed for calculating the distribution function of the accounting surplus. We then examine the probability that the accounting surplus becomes negative in a given insurance year. Numerical examples illustrate the results for portfolios of temporary and endowment life policies assuming a conditional AR(1) process for the rates of return. (C) 2014 Elsevier B.V. All rights reserved.
DOI10.1016/j.insmatheco.2014.02.006