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Abstract

We deal with the problem of pricing equity-linked life insurance policies under uncertainty of randomness and fuzziness. Firstly, we propose an evaluation method for general life insurance, with stochastic representation of mortality and fuzzy quantification of financial present values, by defining the actuarial value of the liabilities as the expectation of a fuzzy random variable. Then, we apply the suggested methodology to the fair valuation of an equity-linked policy. In such a contract policyholder’s benefits are linked to the performance of a reference fund. We perform the risk neutral valuation in a fuzzy binomial-tree model. The crisp value of the policy is obtained by means of a “defuzzification method” based on possibilistic mean values. A numerical example illustrates how the proposed method allows the actuary to model the fuzziness in the parameters according to his subjective judgement.

Keywords

Fuzzy numbers Fuzzy random variables Possibilistic mean values Life insurance 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2012

Authors and Affiliations

  • Luca Anzilli
    • 1
  1. 1.Department of Economics, Mathematics and StatisticsUniversity of SalentoLecceItaly

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