Insurance products with guarantees in an affine setting

Abstract Medium- and long-term insurance products must participate in equity market returns to remain competitive. To eliminate downside risk, guarantees should be included, which naturally gives rise to the problem of valuing contracts in a unified insurance-finance framework. We study a general setup that allows for joint modelling of financial markets, mortality, and policy holder behaviour. Within this framework, we propose a general affine approach exploiting the tractability of affine processes to obtain explicit valuation formulas for variable annuities and related contracts. The model permits flexible dependence between mortality and equity dynamics. Moreover, surrender intensities are modelled as functions of the driving affine process, thereby introducing endogenous market dependence into lapse behaviour – a feature rarely treated analytically in the literature. The resulting framework combines analytical tractability with sufficient flexibility to capture key features of long-term insurance products.

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Publication Details

Journal
Statistics & Risk Modeling
Published
2026-06-30
DOI
https://doi.org/10.1515/strm-2025-0024
Primary Topic
Insurance and Financial Risk Management
Type
article
Field-Weighted Citation Impact
0.00

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article

Insurance products with guarantees in an affine setting

Raquel M. Gaspar, Thorsten Schmidt
Statistics & Risk Modeling
Insurance and Financial Risk Management
article

Insurance products with guarantees in an affine setting

Raquel M. Gaspar, Thorsten Schmidt
article en

Abstract

Abstract Medium- and long-term insurance products must participate in equity market returns to remain competitive. To eliminate downside risk, guarantees should be included, which naturally gives rise to the problem of valuing contracts in a unified insurance-finance framework. We study a general setup that allows for joint modelling of financial markets, mortality, and policy holder behaviour. Within this framework, we propose a general affine approach exploiting the tractability of affine processes to obtain explicit valuation formulas for variable annuities and related contracts. The model permits flexible dependence between mortality and equity dynamics. Moreover, surrender intensities are modelled as functions of the driving affine process, thereby introducing endogenous market dependence into lapse behaviour – a feature rarely treated analytically in the literature. The resulting framework combines analytical tractability with sufficient flexibility to capture key features of long-term insurance products.

Statistics & Risk Modeling
University of Lisbon (PT), University of Freiburg (DE)
Deutsche Forschungsgemeinschaft, Fundação para a Ciência e a Tecnologia
Openalex Percentile: Top 100%
Insurance and Financial Risk Management
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Insurance products with guarantees in an affine setting — Raquel M. Gaspar, Thorsten Schmidt · Statistics & Risk Modeling (2026) | TGRS Research Map | TGRS