Hedging life insurance contracts in a Levy process financial market [An article from: Insurance Mathematics and Economics]

This digital document is a journal article from Insurance Mathematics and Economics, published by Elsevier in 2006. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
Starting from the model of Moller [Risk-minimizing hedging strategies for unit-linked life insurance contracts. ASTIN Bulletin 28 (1998) 17-47] we derive analogously, but for an incomplete financial market, a (locally) risk-minimizing hedging strategy for unit-linked life insurance contracts represented by the pure endowment and the term insurance. The incomplete financial market is exemplarily given by a general Levy-driven model. We investigate the Follmer-Schweizer decomposition of their intrinsic value. Additionally, we compare our results to the ones obtained by Moller [Risk-minimizing hedging strategies for unit-linked life insurance contracts. ASTIN Bulletin 28 (1998) 17-47] and show how they are affected by replacing the complete financial market by an incomplete one.