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Valuation of a multistate life insurance contract with random benefits

  • Persson, Svein-Arne
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    We present a model where the value of the life insurance benefit is random. The policy is at each point in time assumed to be in one of a finite number of states and the evolution of the policy through time is modelled by a time-continuous, non-homogeneous Markov chain. The insurance period of a life insurance contract is long compared to the contract period of a typical financial contingent claim. The value of the insurance benefit is assumed to follow a geometric Gaussian process which has certain appealing properties when dealing with such long contract periods. We use the martingale arbitrage pricing theory to derive the market value of a quite general life insurance policy and deduce the corresponding Thiele's differential equation.

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    Article provided by Elsevier in its journal Scandinavian Journal of Management.

    Volume (Year): 9 (1993)
    Issue (Month): Supplement 1 ()
    Pages: S73-S86

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    Handle: RePEc:eee:scaman:v:9:y:1993:i:supplement1:p:s73-s86
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