Stochastic Modelling of Interest Rate in Application in the Field of Life Insurance – Stochastic Models Cover Image

Stochastic Modelling of Interest Rate in Application in the Field of Life Insurance – Stochastic Models
Stochastic Modelling of Interest Rate in Application in the Field of Life Insurance – Stochastic Models

Author(s): Petr Červinek
Subject(s): Methodology and research technology, Financial Markets
Published by: Masarykova univerzita
Keywords: Interest rate; life insurance; Vasicek’s model; Cox-Ingersoll-Ross model; Ho-Lee model, Hull-White model;
Summary/Abstract: Interest rate plays the essential role in life insurance. When used for life insurance calculation the interest rate is known as the technical interest rate. It is the minimum interest rate guaranteed for the entire term of the insurance policy. Improper setting of technical interest rate can result in far-reaching consequences. Interest rate movement is random. This can be described by stochastic differential equation. There doesn’t exist any universal model for random movement of interest rate at the moment, although many experts/specialists believe that this is just a question of time. And that’s why it is necessary to be familiarised with current models and to choose the most appropriate one. Models relate to the term structure of interest rates and they try to simulate it.

  • Page Range: 10-12
  • Page Count: 3
  • Publication Year: 2010
  • Language: English