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A linear algebraic method for pricing temporary life annuities and insurance policies

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  • Date, P.
  • Mamon, R.
  • Jalen, L.
  • Wang, I.C.

Abstract

We recast the valuation of annuities and life insurance contracts under mortality and interest rates, both of which are stochastic, as a problem of solving a system of linear equations with random perturbations. A sequence of uniform approximations is developed which allows for fast and accurate computation of expected values. Our reformulation of the valuation problem provides a general framework which can be employed to find insurance premiums and annuity values covering a wide class of stochastic models for mortality and interest rate processes. The proposed approach provides a computationally efficient alternative to Monte Carlo based valuation in pricing mortality-linked contingent claims.

Suggested Citation

  • Date, P. & Mamon, R. & Jalen, L. & Wang, I.C., 2010. "A linear algebraic method for pricing temporary life annuities and insurance policies," Insurance: Mathematics and Economics, Elsevier, vol. 47(1), pages 98-104, August.
    • Handle: RePEc:eee:insuma:v:47:y:2010:i:1:p:98-104
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    References listed on IDEAS

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