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Life Insurance Cash Flows with Policyholder Behavior

Author

Listed:
  • Kristian Buchardt

    () (PFA Pension, Sundkrogsgade 4, DK-2100 Copenhagen Ø, Denmark
    Department of Mathematical Sciences, University of Copenhagen, Universitetsparken 5, DK-2100 Copenhagen Ø, Denmark)

  • Thomas Møller

    () (PFA Pension, Sundkrogsgade 4, DK-2100 Copenhagen Ø, Denmark
    Department of Mathematical Sciences, University of Copenhagen, Universitetsparken 5, DK-2100 Copenhagen Ø, Denmark)

Abstract

The problem of the valuation of life insurance payments with policyholder behavior is studied. First, a simple survival model is considered, and it is shown how cash flows without policyholder behavior can be modified to include surrender and free policy behavior by calculation of simple integrals. In the second part, a more general disability model with recovery is studied. Here, cash flows are determined by solving a modified Kolmogorov forward differential equation. We conclude the paper with numerical examples illustrating the methods proposed and the impact of policyholder behavior.

Suggested Citation

  • Kristian Buchardt & Thomas Møller, 2015. "Life Insurance Cash Flows with Policyholder Behavior," Risks, MDPI, Open Access Journal, vol. 3(3), pages 1-28, July.
  • Handle: RePEc:gam:jrisks:v:3:y:2015:i:3:p:290-317:d:53175
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    References listed on IDEAS

    as
    1. Buchardt, Kristian, 2014. "Dependent interest and transition rates in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 55(C), pages 167-179.
    2. Steffensen, Mogens, 2002. "Intervention options in life insurance," Insurance: Mathematics and Economics, Elsevier, vol. 31(1), pages 71-85, August.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Kolmogorov’s differential equations; surrender; free policy; Solvency 2;

    JEL classification:

    • C - Mathematical and Quantitative Methods
    • G0 - Financial Economics - - General
    • G1 - Financial Economics - - General Financial Markets
    • G2 - Financial Economics - - Financial Institutions and Services
    • G3 - Financial Economics - - Corporate Finance and Governance
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics
    • M4 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting
    • K2 - Law and Economics - - Regulation and Business Law

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