On fair valuation of participating life insurance policies with regime-switching

Tak Kuen Siu*

*Corresponding author for this work

Research output: Chapter in Book/Report/Conference proceedingChapterpeer-review

Abstract

We consider the valuation of participating life insurance policies usinga regime-switching Esscher transform developed in Elliott, Chan and Siu (2005)when the market values of the reference asset are driven by a Markov-modulatedgeometric Brownian motion (GBM).We employ the Markov-modulated GBM drivenby a continuous-time hidden Markov chain model to describe the impact of theswitching behavior of the states of economy on the price dynamics of the referenceasset. We also explore the change of measures technique to reduce the dimension ofthe valuation problem.

Original languageEnglish
Title of host publicationHidden Markov models in finance
EditorsRogemar Mamon, Robert Elliott
Place of PublicationNew York
PublisherSpringer, Springer Nature
Pages31-43
Number of pages13
Volume104
ISBN (Electronic)0387711635, 9780387711638
ISBN (Print)0387710817, 9780387710815
Publication statusPublished - 2007
Externally publishedYes

Publication series

NameInternational Series in Operations Research and Management Science
Volume104
ISSN (Print)08848289

Keywords

  • Hidden markov chain model
  • Participating policies
  • Regimeswitching Esscher transform

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