Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5076286 | Insurance: Mathematics and Economics | 2016 | 14 Pages |
Abstract
This paper investigates the impact of relative performance concerns on the longevity risk transfer market. When an insurer concerns about the relative performance in a two-insurer economy, she maximizes the expected utility of her terminal wealth benchmarked against her competitor's. The problem formulation for a general utility, a general interest rate process and cointegrated mortality rates uses a nonzero sum stochastic differential game approach. Explicit solution of the Nash equilibrium is derived for constant relative risk adverse insurers under the Vasicek-type stochastic interest and mortality rates. Existence and uniqueness of the Nash equilibrium are established for the CIR-type models, which rule out negative interest and mortality rates. While previous studies based on the single-agent approaches have shown a high investment demand in longevity bonds, the launch of it was unsuccessful in reality. Ours supplements that the demand is much lower subject to the relative performance concerns.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Kai Yin Kwok, Mei Choi Chiu, Hoi Ying Wong,