Interest Rate Risk Management Of Annuity Under Stochastic Interest Rate Model

Interest rate risk is the main risk of life insurance companies, especially in times when interest volatility is great. Interest volatility has great influence in both assets and liabilities of life insurance companies, as well as solvency. With the marketing of interest rate, there will be greater interest rate volatility, while the term structure models will be more effective.Asset Liability Management (ALM) is the effective risk management technique of life insurance companies. The target of a successful life insurance company is to ensure the solvency while keeping profit. This requires harmonizing its net cash flows from investment (assets) and product portfolio (liabilities). The process of harmonizing is called ALM.This paper introduces the stochastic interest rate model into the ALM model of life insurance products. Through the techniques of...