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Financial and Demographic Risks of a Portfolio of Life Insurance Policies with Stochastic Interest Rates

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  • Maria Bruno
  • Emanuela Camerini
  • Alvaro Tomassetti

Abstract

We refer to a recent paper by G. Parker (1997) in which the risk of a portfolio of life insurance policies (namely the risk related to the entire contractual life) is studied by separating the demographic component from the financial component. In our paper, after making a brief summary of Parker’s model, we propose two additional contributions:We first give the problem a different formalization, thus allowing a portfolio risk analysis by management periods and a study of the risk due to the interactions among years;We elaborate on a powerful and flexible algorithm for calculating the probability distribution of the sum of random variables that proves useful to solve not only the problems discussed in this paper concerning the risk analysis but also various other problems.In the paper, we also show, for both contributions, some applications made under the same financial and demographic assumptions taken by Parker; we also compare our results with Parker’s results.

Suggested Citation

  • Maria Bruno & Emanuela Camerini & Alvaro Tomassetti, 2000. "Financial and Demographic Risks of a Portfolio of Life Insurance Policies with Stochastic Interest Rates," North American Actuarial Journal, Taylor & Francis Journals, vol. 4(4), pages 44-55.
    • Handle: RePEc:taf:uaajxx:v:4:y:2000:i:4:p:44-55
    DOI: 10.1080/10920277.2000.10595937
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    Cited by:

    1. Chen, Li & Lin, Luyao & Lu, Yi & Parker, Gary, 2017. "Analysis of survivorship life insurance portfolios with stochastic rates of return," Insurance: Mathematics and Economics, Elsevier, vol. 75(C), pages 16-31.
    2. Karabey, Uǧur & Kleinow, Torsten & Cairns, Andrew J.G., 2014. "Factor risk quantification in annuity models," Insurance: Mathematics and Economics, Elsevier, vol. 58(C), pages 34-45.
    3. Rabitti, Giovanni & Borgonovo, Emanuele, 2020. "Is mortality or interest rate the most important risk in annuity models? A comparison of sensitivity analysis methods," Insurance: Mathematics and Economics, Elsevier, vol. 95(C), pages 48-58.

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