Variance and Interest Rate Risk in Unit-Linked Insurance Policies

Variance and Interest Rate Risk in Unit-Linked Insurance Policies

Blog Article

One of the risks derived from selling long-term policies that any w insta saree insurance company has arises from interest rates.In this paper, we consider a general class of stochastic volatility models written in forward variance form.We also deal with stochastic interest rates to obtain the risk-free price for unit-linked life insurance contracts, as well as providing a perfect hedging strategy by completing the market.We conclude with a simulation experiment, where we price unit-linked policies using Norwegian mortality rates.In addition, we compare prices for the classical Black-Scholes model against dietrich scissors the Heston stochastic volatility model with a Vasicek interest rate model.