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 for the Chinese public is a typical "three-generations-integrated" model. In this sense, it distinguishes the personal risk management concepts and characteristics of different groups, discusses the life insurance consumption situations and trends resulting from these differences, and further examines the consequences of personal risk situations for the Chinese public, revealing some concerning issues in the characteristics of personal risk management models. Based on this, quantitative methods are employed to conduct research on the innovation and optimization design of life insurance products for the characteristics of personal risk management models for the Chinese public. 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 is found that the life insurance products demanded by the public constitute a typical complex adaptive system. Therefore, a genetic algorithm model is constructed to quantify the process of life insurance product innovation and optimization design. On this basis, the dynamic life insurance pricing problem with a random investment return decision objective is discussed. For this purpose, the necessary basic theories are briefly introduced. As a prerequisite for constructing the life insurance pricing theory, the backward stochastic differential equation and its comparison theorem are introduced in detail. Then, from several aspects, the no-arbitrage life insurance pricing model with a random investment return decision objective is studied. As the core content, the research on 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 but also its hedging concepts and no-arbitrage approaches are suitable for the investment of other funds—as long as the expected return objectives are appropriately limited, various investment portfolio forms can be tested to select investment products that meet the investment requirements. Thus, this no-arbitrage pricing method has a certain general significance. The following provides a brief introduction to this section.
(1) Basic Methods of No-Arbitrage Life Insurance Pricing From the insured'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 expected investment returns. To do so, it must determine the amount of premiums collected while also deciding the structure of the premiums, i.e., the proportion of premiums 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 separated, with hedging considerations only occasionally taken into account during the investment process. This approach is not only rigid but also highly limited...