What the study found
The study proposes a general affine approach for valuing insurance contracts with guarantees, and it yields explicit valuation formulas for variable annuities and related products. The authors report that the framework can model financial markets, mortality, and policyholder behaviour together, while allowing dependence between mortality and equity dynamics.
Why the authors say this matters
The authors say medium- and long-term insurance products need participation in equity market returns to stay competitive, but guarantees are needed to remove downside risk. The study suggests that a unified insurance-finance framework with analytical tractability may help value these contracts in a flexible way.
What the researchers tested
The researchers studied a general setup for jointly modelling financial markets, mortality, and policyholder behaviour. They used affine processes, a class of stochastic processes that often allows explicit formulas, and modelled surrender intensities as functions of the driving affine process.
What worked and what didn't
The affine framework produced explicit valuation formulas for variable annuities and related contracts. It also permitted flexible dependence between mortality and equity dynamics, and it introduced endogenous market dependence into lapse behaviour through surrender intensities. The abstract does not report a comparison with other models or any failed cases.
What to keep in mind
The abstract does not describe empirical data, numerical tests, or limitations of the approach. It also does not state which contract types beyond variable annuities were evaluated in detail.
Key points
- The paper proposes an affine framework for valuing insurance products with guarantees.
- It gives explicit valuation formulas for variable annuities and related contracts.
- The model jointly handles financial markets, mortality, and policyholder behaviour.
- Surrender intensities are linked to the driving affine process, creating market-dependent lapse behaviour.
- The abstract does not report empirical validation or specific limitations.
Disclosure
- Research title:
- Affine model gives explicit valuation formulas for insured contracts
- Authors:
- Raquel M. Gaspar, Thorsten Schmidt
- Institutions:
- University of Freiburg, University of Lisbon
- Publication date:
- 2026-06-30
- OpenAlex record:
- View
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