Intensity-based premium evaluation for unemployment insurance products

Biagini, Francesca ; Groll, Andreas and Widenmann, Jan (2013): Intensity-based premium evaluation for unemployment insurance products. In: Insurance: Mathematics and Economics, Vol. 53, No. 1: pp. 302-316

Abstract

We present a flexible premium determination method for insurance products, in particular, for unemployment insurance products. The price is determined with the real-world pricing formula and under the assumption that the employment–unemployment progress of an insured person follows an F-doubly stochastic Markov chain. The stochastic intensity processes are estimated for the German labor market, using Cox’s proportional hazards model with time-dependent covariates on a sample of integrated labor market biographies. The estimation procedure is based on a counting process framework with stochastic compensators, which we show to be naturally connected to the class of F-doubly stochastic Markov chains. Based on the statistical analysis, the prices are computed using Monte Carlo simulations.

• Item Type: Journal article
• Faculties: Mathematics, Computer Science and Statistics > Mathematics > Workgroup Financial Mathematics
• Subjects: 500 Science > 510 Mathematics
• ISSN: 01676687
• Language: English