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arXiv · 2012.09606

The Thermodynamic Approach to Whole-Life Insurance: A Method for Evaluation of Surrender Risk

Jirô Akahori·Yuuki Ida·Maho Nishida·Shuji Tamada
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Abstract

We introduce a collective model for life insurance where the heterogeneity of each insured, including the health state, is modeled by a diffusion process. This model is influenced by concepts in statistical mechanics. Using the proposed framework, one can describe the total pay-off as a functional of the diffusion process, which can be used to derive a level premium that evaluates the risk of lapses due tothe so-called adverse selection. Two numerically tractable models are presented to exemplify the flexibility of the proposed framework.

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Jirô Akahori, Yuuki Ida, Maho Nishida, Shuji Tamada. 2020-12-10. The Thermodynamic Approach to Whole-Life Insurance: A Method for Evaluation of Surrender Risk. https://arxiv.org/abs/2012.09606

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