Two Hybrid Models for Dependent Death Times of Couple: A Common Shock Approach

22 Pages Posted: 23 May 2022

See all articles by Zied Chaeib

Zied Chaeib

Quantlabs (Quanteam Group)

Domenico DeGiovanni

Università degli Studi della Calabria; Aarhus University - School of Business and Social Sciences

Djibril GUEYE

Quantlabs (Quanteam Group)

Date Written: April 26, 2022

Abstract

We combine two recent credit risk models with the Marshall-Olkin setup to capture the dependence structure of bivariate survival functions. The main advantage of this approach is to handle fatal shock events in the dependence structure since these two credit risk models allow to match the time of death of an individual with a catastrophe time event. We also provide a methodology for adding other sources of dependency in our approach. In such setup, we derive the no-arbitrage prices of some common life insurance product for coupled lives. We demonstrate the performance of our method by investigating Sibuya’s dependence function. Calibration is done on the data of joint life contracts from a Canadian company.

Keywords: Credit risk, Dependence structure, Fatal shock events, Common life insurance

Suggested Citation

Chaeib, Zied and DeGiovanni, Domenico and DeGiovanni, Domenico and Gueye, Djibril, Two Hybrid Models for Dependent Death Times of Couple: A Common Shock Approach (April 26, 2022). Available at SSRN: https://ssrn.com/abstract=4104327 or http://dx.doi.org/10.2139/ssrn.4104327

Zied Chaeib

Quantlabs (Quanteam Group)

8 rue Euler
Paris, 75008
France

Domenico DeGiovanni

Università degli Studi della Calabria ( email )

Ponte Bucci, Cubo 3C
Rende, Cosenza 87036
Italy

Aarhus University - School of Business and Social Sciences ( email )

Nordre Ringgade 1
Aarhus C, DK-8000
Denmark

Djibril Gueye (Contact Author)

Quantlabs (Quanteam Group) ( email )

8 rue Euler
Paris, 75008
France

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