The Application Of Approximate Immunization Strategy In Pricing Of Life Insurance Products

As we know, the profit of life insurance companies mainly comes from mortality margin, interest margin and expense margin. Because of its operation specificity, the interest margin is the most important component of its profit. Almost all the life insurance companies are considering how to manage rate risk more effectively in order to be more competitive.The article focuses on the management of rate risk in a microscopic view, while most articles emphasize it in a macroscopic view. It introduces'duration-convexity matching' approximate immunization strategy to the premium design of the life insurance product which can effectively resist the rate risk in advance.This paper is made up of 4 parts. Chapter 1 mainly gives a general introduction of the rate risk of life insurance companies, the common countermeasures adopted by companies, and related research at home and abroad. Chapter 2 makes an introduc-tion of duration, convexity,'duration matching' approximate immunization strategy and 'duration-convexity matching' approximate immunization strategy. Chapter 3 applies these two strategies into the premium design, both in the continuous time condition and discrete time condition. Chapter 4 gets a conclusion that'duration-convexity matching' approximate immunization strategy is more effective in resisting the interest risk than 'duration matching' approximate immunization strategy. It also suggests several points for further discussion in the future.The innovation of the paper is introducing the duration matching and applying the 'duration-convexity matching' approximate immunization strategy to the premium design of the life insurance product. It concludes the immunization prerequisites both in the continuous time model and discrete time model.