Traditionally, valuation models in life insurance assume an independence between the financial risks and the mortality or longevity risks. This orthogonality between insurance and finance allows for to apply in the valuation procedure, a clear separation between on the one hand the discount effect and on the other hand the survival probabilities. We can say that this independence is really at the heart of the models, from classical actuarial pricing to more modern stochastic models. This independence principle could seem reasonable at first sight. However, different circumstances could lead to correlation between mortality / demographic evolutions and the financial markets. The recent effects of COVID illustrate perfectly this point.  Ageing is another potential example of demographic phenomenon with expected consequences on financial investments. What happens if we introduce in the stochastic models of valuation used in life insurance a correlation between interest rates or risky returns and mortality intensities? This will be the topic of this session.

Organised by the EAA – European Actuarial Academy GmbH.

The web session is open to all interested persons, especially for financial and life actuaries and everybody motivated by actuarial and financial valuation issues.

Technical Requirements
Please check with your IT department if your firewall and computer settings support web session participation (the programme Zoom will be used for this online training). Please also make sure that you are joining the web session with a stable internet connection.

The purpose of this web session is to revisit the valuation of some life insurance products in a financial and longevity stochastic environment with potential correlation between these two risks. We will start from the very basic actuarial formula and present first our analysis using a simple bivariate correlated binomial model. Then, we will extend the modelization, using continuous time stochastic processes for interest rates, risky returns of investment funds and mortality intensities. Our goal is to measure the effect of eventual correlation insurance – finance on the valuation of life insurance contracts.

The language of the web session will be English.

Pierre Devolder
Pierre DEVOLDER is professor of mathematical finance and actuarial science at the Catholic University of Louvain (UCL) (Institute of Statistics, Biostatistics and Actuarial Science, ISBA/LIDAM, Belgium). He has a PhD in mathematics from the University of Brussels. He is also actuary and academic member of the Belgian Institute of actuaries (IABE). His main research activities are focused on stochastic finance, life insurance and pension theory. He has published 6 books on pension and finance and a lot of papers in various actuarial journals. He gives regular courses at the universities of Brussels, Strasbourg, Rabat and EM Lyon. He is member of the Belgian “Conseil Académique des Pensions” and chairman of the board of REACFIN (actuarial consulting).