2020/12/10 by Akahori, Jirô, Ida, Yuuki, Nishida, Maho +1
#FOS: Economics and business #FOS: Mathematics #General Finance (q-fin.GN) #Probability (math.PR)
paper · doi:10.48550/arxiv.2012.09606
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.