Life Insurance Product Optimization Theory: Models and Methods

Author: Shi Yufeng
Publisher:
Publish Date: 2006-06-01
Features: This book explores the characteristics of personal risk management models for the Chinese public and proposes that personal risk management among the Chinese population follows a typical "three-generations-integrated" model. In this sense, it distinguishes the personal risk management concepts and characteristics of different groups, discusses the resulting life insurance consumption patterns and their development trends. By further examining the personal risk situations and consequences of the Chinese public, it reveals some concerning issues in the characteristics of personal risk management models. Based on this foundation, it employs quantitative methods to study the innovation and optimization design of life insurance products for the characteristics of personal risk management models in the Chinese population. It points out that life insurance products are essentially the result of people comparing and weighing various factors that can form a policy based on their life philosophies and practical conditions. To make insurance resources fully utilized, it emphasizes that product innovation should be separated from the product pricing process to allow for theoretical research. From a scientific perspective, it finds that the life insurance products demanded by the public constitute a typical complex adaptive system, and thus constructs a genetic algorithm model to quantify the process of life insurance product innovation and optimization design. On this basis, it explores the dynamic life insurance pricing problem with a stochastic investment return decision objective. For this purpose, it briefly introduces the necessary theoretical foundations. As a prerequisite for constructing life insurance pricing theory, it focuses on introducing backward stochastic differential equations and their comparison theorems. Then, from several aspects, it studies the no-arbitrage life insurance pricing model with a stochastic investment return decision objective. As the core content, the study of the no-arbitrage life insurance pricing model is the most important part of this book. Considering that not all risky investments can necessarily take the form of options (in fact, most do not, especially in underdeveloped investment markets like China), the "hedging" concept and "no-arbitrage" approach of option pricing theory cannot be directly applied to the pricing of non-option-form risky assets, including life insurance pricing. Therefore, the targeted research conducted in this section is not only important for life insurance pricing methods itself but also its hedging and no-arbitrage approaches are applicable to other fund investments—provided that the expected return objectives are appropriately defined. By testing various investment portfolio forms, suitable investment products meeting the investment requirements can be selected. Thus, this no-arbitrage pricing method has certain general significance. Below, a brief introduction to this section is provided.
(1) Basic Research on No-Arbitrage Life Insurance Pricing From the policyholder's perspective, the act of purchasing insurance can be seen as hedging against the premiums paid. The insurer, on the other hand, must invest the premiums collected to achieve the desired investment returns. To this end, it must determine the amount of premiums collected and decide on the structure of the premiums, specifically the proportion allocated to risky investments. Given the solvency requirements of life insurance, the insurer's decision-making process must also reflect the "hedging" concept to ensure future payouts. However, according to traditional life insurance pricing methods, pricing and investment are separate, with hedging considerations at most being taken into account during the investment process. This approach not only appears rigid but also has significant limitations...