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2009: Relative hedging of systematic mortality risk

By Erhan Bayraktar and Michael Ludkovski

Abstract

We study indifference pricing mechanisms for mortality contingent claims under stochas-tic mortality age structures. Our focus is on capturing the internal cross-hedge between components of an insurer’s portfolio, especially between life annuities and life insurance. We carry out an exhaustive analysis of the dynamic exponential premium principle which is the representative nonlinear pricing rule in our framework. Along the way we also derive and compare a variety of linear pricing rules which value claims under various martingale mea-sures. We illustrate our examples with realistic numerical examples that show the relative importance of model parameters

Topics: stochastic mortality, asymptotic expansions, exponential premium principle, indif- ference pricing JEL Code, G11, G13, G22
Year: 2015
OAI identifier: oai:CiteSeerX.psu:10.1.1.549.4616
Provided by: CiteSeerX
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