Affine Processes for Dynamic Mortality and Actuarial Valuations
37 Pages Posted: 12 Jan 2005
Date Written: October 2004
We address the risk analysis and market valuation of life insurance contracts in a jump-diffusion setup. We exploit the analytical tractability of affine processes to deal simultaneously with financial and demographic risks affecting a wide range of insurance covers. We then focus on mortality at pensionable ages and show how the risk of longevity can be taken into account. A parallel with the pricing of certain credit risky securities is drawn, in order to employ important results derived in that field.
Keywords: Affine jump-diffusion, stochastic mortality, doubly stochastic processes, longevity risk, fair value
JEL Classification: G13, G22, J11, M40
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