The Thermodynamic Approach to Whole-Life Insurance: A Method for Evaluation of Surrender Risk
General Finance
2020-12-18 v1 Probability
Abstract
We introduce a collective model for life insurance where the heterogeneity of each insured, including the health state, is modeled by a diffusion process. This model is influenced by concepts in statistical mechanics. Using the proposed framework, one can describe the total pay-off as a functional of the diffusion process, which can be used to derive a level premium that evaluates the risk of lapses due tothe so-called adverse selection. Two numerically tractable models are presented to exemplify the flexibility of the proposed framework.
Keywords
Cite
@article{arxiv.2012.09606,
title = {The Thermodynamic Approach to Whole-Life Insurance: A Method for Evaluation of Surrender Risk},
author = {Jirô Akahori and Yuuki Ida and Maho Nishida and Shuji Tamada},
journal= {arXiv preprint arXiv:2012.09606},
year = {2020}
}