The use of forward models for the future development of mortality has been proposed by several authors. In this article, we specify adequate volatility structures for such models. We derive a Heath-Jarrow-Morton drift condition under different measures. Based on demographic and epidemiological insights, we then propose two different models with a Gaussian and a non-Gaussian volatility structure, respectively. We present a Maximum Likelihood approach for the calibration of the Gaussian model and develop a Monte Carlo Pseudo Maximum Likelihood approach that can be used in the non-Gaussian case. We calibrate our models to historic mortality data and analyze and value certain longevity-dependent payoffs within the models.
{"title":"The Volatility of Mortality","authors":"Daniel Bauer, M. Börger, Jochen Russ, H. Zwiesler","doi":"10.2202/2153-3792.1035","DOIUrl":"https://doi.org/10.2202/2153-3792.1035","url":null,"abstract":"The use of forward models for the future development of mortality has been proposed by several authors. In this article, we specify adequate volatility structures for such models. We derive a Heath-Jarrow-Morton drift condition under different measures. Based on demographic and epidemiological insights, we then propose two different models with a Gaussian and a non-Gaussian volatility structure, respectively. We present a Maximum Likelihood approach for the calibration of the Gaussian model and develop a Monte Carlo Pseudo Maximum Likelihood approach that can be used in the non-Gaussian case. We calibrate our models to historic mortality data and analyze and value certain longevity-dependent payoffs within the models.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126549499","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The huge economic significance of longevity risk for corporations, governments and individuals is beginning to be recognized and quantified. The traditional insurance route for managing this risk is capacity constrained, leaving the capital markets to provide an effective solution. We consider what capital markets need to both start and evolve. We then look at the first generation of bond-based capital market solutions that have been tried so far and examine their success or failure. The lessons learned here have informed the design of the second generation of derivatives-based capital market solutions. Although there remain barriers to surmount, we are witnessing the birth of the life market, the market in longevityrelated financial instruments.
{"title":"The Birth of the Life Market","authors":"D. Blake, A. Cairns, K. Dowd","doi":"10.2202/2153-3792.1027","DOIUrl":"https://doi.org/10.2202/2153-3792.1027","url":null,"abstract":"The huge economic significance of longevity risk for corporations, governments and individuals is beginning to be recognized and quantified. The traditional insurance route for managing this risk is capacity constrained, leaving the capital markets to provide an effective solution. We consider what capital markets need to both start and evolve. We then look at the first generation of bond-based capital market solutions that have been tried so far and examine their success or failure. The lessons learned here have informed the design of the second generation of derivatives-based capital market solutions. Although there remain barriers to surmount, we are witnessing the birth of the life market, the market in longevityrelated financial instruments.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"18 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125175030","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
There has been a significant increase in the life expectancies of the Taiwanese population after the end of Second World War. Like in many developed countries, due to the prolonging life expectancy and lower fertility rates, the aging population has now become a major policy concern in Taiwan. The search for feasible methods for modeling the future mortality changes has become a popular issue in Taiwan. The Lee-Carter (LC) model, the reduction factor (RF) model and the age-period-cohort (APC) model are three frequently used methods for modeling future mortality dynamics. In this paper, we introduce these three models and discuss their respective pros and cons. We carry out an empirical study using these models based on Taiwan mortality experience. In addition, we make a comparison analysis of different models with different mortality experience in Japan, England and Wales, and the US.
{"title":"An Empirical Study of Mortality Models in Taiwan","authors":"Hong-Chih Huang, Jack C. Yue, Sharon S. Yang","doi":"10.2202/2153-3792.1033","DOIUrl":"https://doi.org/10.2202/2153-3792.1033","url":null,"abstract":"There has been a significant increase in the life expectancies of the Taiwanese population after the end of Second World War. Like in many developed countries, due to the prolonging life expectancy and lower fertility rates, the aging population has now become a major policy concern in Taiwan. The search for feasible methods for modeling the future mortality changes has become a popular issue in Taiwan. The Lee-Carter (LC) model, the reduction factor (RF) model and the age-period-cohort (APC) model are three frequently used methods for modeling future mortality dynamics. In this paper, we introduce these three models and discuss their respective pros and cons. We carry out an empirical study using these models based on Taiwan mortality experience. In addition, we make a comparison analysis of different models with different mortality experience in Japan, England and Wales, and the US.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133438304","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Book Review: Risk Management and Insurance: Perspectives in a Global Economy","authors":"Query J. Tim","doi":"10.2202/2153-3792.1024","DOIUrl":"https://doi.org/10.2202/2153-3792.1024","url":null,"abstract":"","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"206 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2008-03-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116194614","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider a renewal risk model in which the claim inter-arrival distribution is generalized exponential (GE). We obtain the probability distribution for the ladder height distribution and use it to find the bounds for the ultimate ruin probabilities for individual claim amount distributions. The method suggested by Dufresne and Gerber (1989) is used for finding the bounds for ruin probabilities.
{"title":"Ruin Probabilities under Generalized Exponential Distribution","authors":"K. Thampi, M. J. Jacob, N. Raju","doi":"10.2202/2153-3792.1013","DOIUrl":"https://doi.org/10.2202/2153-3792.1013","url":null,"abstract":"We consider a renewal risk model in which the claim inter-arrival distribution is generalized exponential (GE). We obtain the probability distribution for the ladder height distribution and use it to find the bounds for the ultimate ruin probabilities for individual claim amount distributions. The method suggested by Dufresne and Gerber (1989) is used for finding the bounds for ruin probabilities.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129080116","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Along with competence, ethical behavior is a key component of professionalism. In carrying out their duties, all life insurance professionals encounter a variety of ethical dilemmas as well as a number of factors that can present challenges to their efforts to resolve these dilemmas in an ethical manner. By comparing the ethical environments of the U.S. and South Korean life insurance industries, this paper examines how significant differences in culture can affect the key ethical issues and the hindrances to ethical behavior faced by life insurance professionals working in the two countries.
{"title":"A Cross-Cultural Comparison of the Ethical Environments of the U.S. and South Korean Life Insurance Markets","authors":"R. W. Cooper, Bongjooo Lee, K. Lee, Han-Duck Lee","doi":"10.2202/2153-3792.1007","DOIUrl":"https://doi.org/10.2202/2153-3792.1007","url":null,"abstract":"Along with competence, ethical behavior is a key component of professionalism. In carrying out their duties, all life insurance professionals encounter a variety of ethical dilemmas as well as a number of factors that can present challenges to their efforts to resolve these dilemmas in an ethical manner. By comparing the ethical environments of the U.S. and South Korean life insurance industries, this paper examines how significant differences in culture can affect the key ethical issues and the hindrances to ethical behavior faced by life insurance professionals working in the two countries.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"67 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2006-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127943736","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The design of a comprehensive social security system is a critical issue to many countries and regions. This paper presents a comparative economic welfare analysis on typical social security systems from the viewpoints of all-generation welfare and each-generation welfare, respectively. The analysis shows that the fact that one social security system is better or worse than another is not absolute and that it depends on some specific parameter conditions. In the paper, we provide these parameter conditions and also show a paradox of social security system design based on the analysis. At the end of the paper, two further research-worthy questions are raised.
{"title":"A Comparative Welfare Analysis of Social Security System Selection","authors":"Wei Zheng","doi":"10.2202/2153-3792.1000","DOIUrl":"https://doi.org/10.2202/2153-3792.1000","url":null,"abstract":"The design of a comprehensive social security system is a critical issue to many countries and regions. This paper presents a comparative economic welfare analysis on typical social security systems from the viewpoints of all-generation welfare and each-generation welfare, respectively. The analysis shows that the fact that one social security system is better or worse than another is not absolute and that it depends on some specific parameter conditions. In the paper, we provide these parameter conditions and also show a paradox of social security system design based on the analysis. At the end of the paper, two further research-worthy questions are raised.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"60 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127699321","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Within the framework of an overlapping generations model with two-sided altruism and endogenous growth, this paper calculates the rates of fertility, output growth, child-rearing cost, saving, consumption, net intertemporal transfer, bequest and gift, and compares the equilibrium solutions under different public pension systems. It proves that the fully-fertilitylinked public pension system (FFLPPS) is equivalent to the system without public pension (WPPS), and the partly-fertility-linked public pension system (PFLPPS) is equivalent to the conventional public pension system (CPPS). The CPPS is beneficial to developing countries in promoting economic growth and reducing population. It is necessary for developed countries to weigh gains and losses carefully if they hope to transform their CPPS (or PFLPPS) to the FFLPPS.
{"title":"Pay-As-You-Go Public Pension Systems: Two-sided Altruism and Endogenous Growth","authors":"Zaigui Yang","doi":"10.2202/2153-3792.1002","DOIUrl":"https://doi.org/10.2202/2153-3792.1002","url":null,"abstract":"Within the framework of an overlapping generations model with two-sided altruism and endogenous growth, this paper calculates the rates of fertility, output growth, child-rearing cost, saving, consumption, net intertemporal transfer, bequest and gift, and compares the equilibrium solutions under different public pension systems. It proves that the fully-fertilitylinked public pension system (FFLPPS) is equivalent to the system without public pension (WPPS), and the partly-fertility-linked public pension system (PFLPPS) is equivalent to the conventional public pension system (CPPS). The CPPS is beneficial to developing countries in promoting economic growth and reducing population. It is necessary for developed countries to weigh gains and losses carefully if they hope to transform their CPPS (or PFLPPS) to the FFLPPS.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125476101","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We try to model surrender rates with a few explanatory variables such as the difference between reference new money rates and product crediting rates with surrender charges, the policy age since the contract was issued, unemployment rates, economy growth rates, and seasonal effects. In modeling surrender rates we use the logit function. We calculate the value of interest indexed annuities and investigate the surrender rate impacts on the value, the duration, and the convexity of interest indexed annuities.
{"title":"Surrender Rate Impacts on Asset Liability Management","authors":"Kim， Changki","doi":"10.2202/2153-3792.1004","DOIUrl":"https://doi.org/10.2202/2153-3792.1004","url":null,"abstract":"We try to model surrender rates with a few explanatory variables such as the difference between reference new money rates and product crediting rates with surrender charges, the policy age since the contract was issued, unemployment rates, economy growth rates, and seasonal effects. In modeling surrender rates we use the logit function. We calculate the value of interest indexed annuities and investigate the surrender rate impacts on the value, the duration, and the convexity of interest indexed annuities.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"29 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2005-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121854838","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Abstract In this paper, a general framework is built up to model the dynamic of consumer health plan choice and individual health insurance market competition. A primary goal is to identify driving forces to individual health insurance equilibrium market coverage and premium. In the baseline model, we introduce plan quality information search cost as an additional determinant to consumer’s plan choice. Health insurers compete under the Hotelling’s game theory framework. Equilibrium solutions of the baseline model highlight the importance of budget limit and information search cost to health plan enrollment. The more important objective is to examine the impact of market entrants on equilibrium insurance market coverage and plan prices. In the model with market entry, we add an additional dimension to the baseline model. Equilibrium solutions and numerical studies show positive impact of higher insurance market coverage and lower health plan prices. The Affordable Care Act (ACA) brought multiple unprecedented changes to the health insurance market and provided opportunities to study market dynamics and driving forces. The ACA health insurance exchange market experience shows consistency with our model findings even at the early stage of implementation. More importantly, market observations suggest that entry barriers of claim costs and information search cost are high for entrants.
{"title":"Individual Health Insurance Market with an Entrant – The ACA Health Insurance Exchange Observations","authors":"Bo Shi, Wen Chen","doi":"10.1515/apjri-2018-0001","DOIUrl":"https://doi.org/10.1515/apjri-2018-0001","url":null,"abstract":"Abstract In this paper, a general framework is built up to model the dynamic of consumer health plan choice and individual health insurance market competition. A primary goal is to identify driving forces to individual health insurance equilibrium market coverage and premium. In the baseline model, we introduce plan quality information search cost as an additional determinant to consumer’s plan choice. Health insurers compete under the Hotelling’s game theory framework. Equilibrium solutions of the baseline model highlight the importance of budget limit and information search cost to health plan enrollment. The more important objective is to examine the impact of market entrants on equilibrium insurance market coverage and plan prices. In the model with market entry, we add an additional dimension to the baseline model. Equilibrium solutions and numerical studies show positive impact of higher insurance market coverage and lower health plan prices. The Affordable Care Act (ACA) brought multiple unprecedented changes to the health insurance market and provided opportunities to study market dynamics and driving forces. The ACA health insurance exchange market experience shows consistency with our model findings even at the early stage of implementation. More importantly, market observations suggest that entry barriers of claim costs and information search cost are high for entrants.","PeriodicalId":244368,"journal":{"name":"Asia-Pacific Journal of Risk and Insurance","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"1900-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114402240","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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