Blanchet, J., & Lam, H. (2013). A heavy traffic approach to modeling large life insurance portfolios. Insurance: Mathematics and Economics, 53(1), 237-251. https://doi.org/10.1016/j.insmatheco.2013.04.011
Abstract
We explore a new framework to approximate life insurance risk processes in the scenario of plentiful policyholders, via a bottom-up approach. Given the insurance contract structure, we aggregate the balance of individual policy accounts, and derive an approximating Gaussian process with computable correlation structure. The methodology is borrowed from heavy traffic theory in the literature of many-server queues, and involves the so-called fluid and diffusion approximations. Our framework is different from the individual risk model in that it takes into account the time dimension and the specific policy structure including the premium payments. It is also different from classical risk theory in that it builds the risk process from micro-level contracts and parameters instead of assuming aggregated claim and premium processes outright. As a result, our approximating process behaves differently depending on the issued …
Authors
Jose Blanchet, Henry Lam
Publication date
2013/7/1
Journal
Insurance: Mathematics and Economics
Volume
53
Issue
1
Pages
237-251
Publisher
North-Holland
