Locally risk-minimizing hedging strategies for unit-linked life insurance contracts under a regime switching Lévy model

Linyi QIAN; Hailiang YANG; Rongming WANG

doi:10.1007/s11464-011-0100-6

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Front. Math. China ›› 2011, Vol. 6 ›› Issue (6) : 1185-1202. DOI: 10.1007/s11464-011-0100-6

RESEARCH ARTICLE

Locally risk-minimizing hedging strategies for unit-linked life insurance contracts under a regime switching Lévy model

Linyi QIAN¹^,² ,
Hailiang YANG³ ,
Rongming WANG¹^,²^,⁴

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Abstract

This paper extends the model and analysis in that of Vandaele and Vanmaele [Insurance: Mathematics and Economics, 2008, 42: 1128-1137]. We assume that parameters of the L′evy process which models the dynamic of risky asset in the financial market depend on a finite state Markov chain. The state of the Markov chain can be interpreted as the state of the economy. Under the regime switching L′evy model, we obtain the locally risk-minimizing hedging strategies for some unit-linked life insurance products, including both the pure endowment policy and the term insurance contract.

Keywords

Unit-linked life insurance / Lévy process / regime switching / riskminimization

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Linyi QIAN, Hailiang YANG, Rongming WANG. Locally risk-minimizing hedging strategies for unit-linked life insurance contracts under a regime switching Lévy model. Front Math Chin, 2011, 6(6): 1185‒1202 https://doi.org/10.1007/s11464-011-0100-6

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