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Utility function based arbitrage pricing model policy

Author: WangBingNa
Tutor: LiBingQing
School: Nankai University
Course: Actuarial Science
Keywords: Utility No arbitrage Risk preferences Risk Aversion
CLC: F840
Type: Master's thesis
Year: 2011
Downloads: 188
Quote: 0
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Abstract


Today the pricing of insurance research at home and abroad there are two main theories - conventional insurance pricing theory and finance-based insurance pricing theory. Traditional pricing model surface looks very \Pricing models of financial insurance products, there are some shortcomings of insurance products and financial instruments are essentially different, most insurance products are based on risk aversion for the purpose of the insurance is the subject of consumer goods or people themselves, but people buy financial products are For investment, the pursuit of profit, which also determines the pricing of financial instruments of copying a theory is inappropriate. In order to solve the above two models defects, this paper presents a utility function based arbitrage Insurance Pricing thought. Thoughts on the use of no-arbitrage pricing of insurance policies, the utility function is introduced into the model, the premium may be more market-oriented, to achieve differentiation pricing. The subject of this paper, the utility brought into the effectiveness and utility gained from the policy, and the two kinds of utility functions were analyzed, considering a variety of utility functions for comparisons. As can be seen the two utility functions were selected in different forms, the model results vary greatly. Therefore, using this model for pricing policy for the selection of the utility function in the form can not be ignored. In the empirical analysis, observed that there are two utility functions of the traditional pricing model fit well, but the authors do not believe that the utility function by these two models posed certain is the best, because the traditional thinking of the premium pricing the \Exactly which one is the correct model is the most suitable for the pricing of insurance policies, the need to go through the practice of verification and market test. Finally, simulation experiment found that, in each case, based on the utility function in the no-arbitrage pricing model the results can be well fitted traditional pricing methods, indicating that the method is feasible, which in turn provides a price for policyholders kinds of new ideas. This method is not intended to cater to the traditional pricing methods exist, it is a new pricing method, is based on the utility function, consider the market pricing methods with traditional pricing methods do not consider differences in different markets, this kind of approach is more more people to consider the difference in the market. Meanwhile, this method compared with other methods, the biggest advantage is that, not the actual monetary value of wealth to measure the value of the wealth, but to bring people of wealth to measure the effectiveness of its value, so that pricing model can better meet people's psychological expectations, but also a more realistic pricing model.

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CLC: > Economic > Fiscal, monetary > Insurance > Insurance Theory
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