12 research outputs found
Hedging and Cash Flows in the Presence of Taxes and Expenses in Life and Pension Insurance
In investment and insurance contracts, certain stipulated payments may depend on the hedging strategy. We study the problem of calculation, hedging and valuation of such cash flows, by considering a payment process in a setup with taxes and investment costs that are functions of the investment returns or the current value of the hedging strategy. We determine the market value of the combined liability and decompose the value into the tax part, the investment cost part and the benefit part, and we determine the associated hedging strategies. Moreover, we identify the expected future tax payments and investment cost cash flows. Our results show that the current Danish insurance accounting practice for taxes is in general conservative, when considered in an idealized setting with symmetric and continuously-paid taxes. Finally, we consider the special case of affine interest rates, where explicit results can be obtained, and study some numerical results
Tax- and expense-modified risk-minimization for insurance payment processes
We study the problem of determining risk-minimizing investment strategies for
insurance payment processes in the presence of taxes and expenses. We consider
the situation where taxes and expenses are paid continuously and symmetrically
and introduce the concept of tax- and expense-modified risk-minimization.
Risk-minimizing strategies in the presence of taxes and expenses are derived
and linked to Galtchouk-Kunita-Watanabe decompositions associated with modified
versions of the original payment processes. Furthermore, we show equivalence to
an alternative approach involving an artificial market consisting of after-tax
and after-expense assets, and we establish a type of consistency with classic
risk-minimization. Finally, a case study involving classic multi-state life
insurance payments in combination with a bond market exemplifies the results
Hedging and Cash Flows in the Presence of Taxes and Expenses in Life and Pension Insurance
In investment and insurance contracts, certain stipulated payments may depend on the hedging strategy. We study the problem of calculation, hedging and valuation of such cash flows, by considering a payment process in a setup with taxes and investment costs that are functions of the investment returns or the current value of the hedging strategy. We determine the market value of the combined liability and decompose the value into the tax part, the investment cost part and the benefit part, and we determine the associated hedging strategies. Moreover, we identify the expected future tax payments and investment cost cash flows. Our results show that the current Danish insurance accounting practice for taxes is in general conservative, when considered in an idealized setting with symmetric and continuously-paid taxes. Finally, we consider the special case of affine interest rates, where explicit results can be obtained, and study some numerical results
Computation of bonus in multi-state life insurance
We consider computation of market values of bonus payments in multi-state
with-profit life insurance. The bonus scheme consists of additional benefits
bought according to a dividend strategy that depends on the past realization of
financial risk, the current individual insurance risk, the number of additional
benefits currently held, and so-called portfolio-wide means describing the
shape of the insurance business. We formulate numerical procedures that
efficiently combine simulation of financial risk with classic methods for the
outstanding insurance risk. Special attention is given to the case where the
number of additional benefits bought only depends on the financial risk.
Methods and results are illustrated via a numerical example