Net Reserve Calculation for Whole Life Insurance Under Mean-Reverting Stochastic Interest Rate Models
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Haoqi Lyu
Abstract
Reserve calculation is crucial for insurance companies. Due to the long-term nature of life insurance products, stochastic interest rate models are more suitable when calculating the premium and reserve of a life insurance product. In this article, we use several popular mean-reverting stochastic interest rate models to study the impact of the model and its parameters on the values of reserves for life insurance products. We employ linear regression, moment estimation, and error optimization methods to calibrate the Vasicek, Cox-Ingersoll-Ross (CIR), CIR#, and Chen models. Our analysis reveals that when applying mean-reverting stochastic interest rate models to a whole life insurance policy, the initial interest rate and the long-term mean have a significant influence on the net reserve value. However, the speed of reversion and volatility only marginally impact the net reserve. Additionally, we observe that the numerical result of the net reserve is sensitive to the time period of the interest rate data and the term structures of the yield rates used in the analysis.
Acknowledgments
The authors would like to thank the referees and the handling editor for their many helpful comments and suggestions which significantly improve the quality of the research and greatly enhance the clarity of the article. The research of Hailiang Yang is supported by National Natural Science Foundation of China (Grant number 12471452) and a grant from Xi’an Jiaotong-Liverpool University (Grant number RDF-23-01-006).
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Articles in the same Issue
- Frontmatter
- Featured Articles (Research Paper)
- Net Reserve Calculation for Whole Life Insurance Under Mean-Reverting Stochastic Interest Rate Models
- Integrating Remote Sensing Data in Crop Insurance: A Solution to Data Scarcity in India
- How do Consumers Think About Usage-Based Auto Insurance? –A Survey Analysis from Taiwan
- Measurement of Risk Culture in General Insurance Companies in India – An Empirical Validation Using a Causal Model
Articles in the same Issue
- Frontmatter
- Featured Articles (Research Paper)
- Net Reserve Calculation for Whole Life Insurance Under Mean-Reverting Stochastic Interest Rate Models
- Integrating Remote Sensing Data in Crop Insurance: A Solution to Data Scarcity in India
- How do Consumers Think About Usage-Based Auto Insurance? –A Survey Analysis from Taiwan
- Measurement of Risk Culture in General Insurance Companies in India – An Empirical Validation Using a Causal Model
