NDLI: Markov chain modeling of policyholder behavior in life insurance and pension

Content Provider	Springer Nature Link
Author	Henriksen, Lars Frederik Brandt Nielsen, Jeppe Woetmann Steffensen, Mogens Svensson, Christian
Copyright Year	2014
Abstract	We calculate reserves regarding expected policyholder behavior. The behavior is modeled to occur incidentally similarly to insurance risk. The focus is on multi-state modelling of insurance risk and behavioral risk in terms of free policy risk and surrender risk. We discuss valuation techniques in the cases where behavior is modeled to occur independently or dependently of insurance risk, respectively. Ordinary differential equations make it easier to work with dependence between insurance risk and behavior risk. We analyze the effects of the underlying behavioral assumptions for two contracts. For a “new” contract with low technical interest rate relative to the market interest rate, we obtain the lowest reserve by counting in dependence. For an “old” contract with high technical interest rate relative to the market interest rate, the picture is more blurred, depending on assumptions on reactivation (recovery) and independence.
Starting Page	1
Ending Page	29
Page Count	29
File Format	PDF
ISSN	21909733
Journal	European Actuarial Journal
Volume Number	4
Issue Number	1
e-ISSN	21909741
Language	English
Publisher	Springer Berlin Heidelberg
Publisher Date	2014-05-17
Publisher Place	Berlin, Heidelberg
Access Restriction	One Nation One Subscription (ONOS)
Subject Keyword	Surrender option Free policy option Ordinary differential equation Recovery Dependence Quantitative Finance Finance/Investment/Banking Applications of Mathematics Game Theory, Economics, Social and Behav. Sciences
Content Type	Text
Resource Type	Article
Subject	Statistics and Probability Economics and Econometrics Statistics, Probability and Uncertainty

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