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Equity-indexed life insurance: pricing and reserving using the principle of equivalent utility. (English) Zbl 1084.91521

Summary: The author applies the principle of equivalent utility to price and reserve equity-indexed life insurance. Young and Zariphopoulou (2002a, b) extended this principle to price insurance products in a dynamic framework. However, in those papers, the insurance risks were independent of the risky asset in the financial market. By contrast, the death benefit for equity-indexed life insurance is a function of a risky asset; therefore, this paper further extends the principle of equivalent utility. In a second extension, the author applies the principle of equivalent utility to calculate reserves, as introduced by Gerber (1976). In a related paper, Moore and Young (2002) price equity-indexed pure endowments, the building blocks of equity-indexed life annuities.

MSC:

91B30 Risk theory, insurance (MSC2010)
60H10 Stochastic ordinary differential equations (aspects of stochastic analysis)
60H30 Applications of stochastic analysis (to PDEs, etc.)
91B70 Stochastic models in economics
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