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Polynomial Diffusion Models for Life Insurance Liabilities (1602.07910v4)
Published 25 Feb 2016 in q-fin.MF
Abstract: In this paper we study the pricing and hedging problem of a portfolio of life insurance products under the benchmark approach, where the reference market is modelled as driven by a state variable following a polynomial diffusion on a compact state space. Such a model guarantees not only the positivity of the OIS short rate and the mortality intensity, but also the possibility of approximating both pricing formula and hedging strategy of a large class of life insurance products by explicit formulas.