A Research On Pricing Of Life Insurance Products With The CIR Model

With the rapid development of China’s economy,the life insurance also got slowly recovering in 1982,and it plays an important role in accelerating the reform,securing the economy,safeguarding the social stability and benefiting the people.Then the life insurance industry has gradually entered a stage of rapid development,the scientific methods,especially the actuarial theory caught the attention of many scholars.In the life insurance product pricing,the following factors should be mainly considered:interest ratio,mortality and expense rate.To the mortality,different investigation modalities were assessed as predictors of mortality.And insurance companies can forecast reasonably on the cost rate by strict underwriting.Interest rate is mainly influenced by the social environment,government policy,economic change,natural disasters and other factors.So it is difficult to reasonable to predict it.In the process of pricing of the traditional life insurance actuarial model with fixed interest rate is used.However,If assumed interest rate is too high,life insurance will bear great loss,as a result of the unstable interest rate;Yet,if too low,it will seriously impact on the sales of traditional life insurance policy.Therefore,for reducing the uncertainty risks on interest rate,we propose to establish the life insurance products pricing model under the stochastic interest rate.First of all,this article is based on the study of life insurance actuarial theory and the research of scholars at home and abroad,the base theory of life insurance actuarial model is introduced and creating mechanism of rates risk is analyzed.It illustrates the influence from the interest rates element to life insurance management.With concerning the property of interest rates stochastic changing,the life insurance actuarial model with stochastic interest rates is established.Second,based on the traditional life insurance actuarial model,we lead in the Cox-Ingersoll-Ross(CIR)model,regard bank lending rates about 7 days’ data as sample,using the Generalized Method of Moments to estimate the CIR model parameters,and through the test of hypothesis,in order to get more reasonable CIR model and the various parameters.Then,we will substitute CIR model into the pricing of life insurance products research,to build the pure insurance cost,life annuities,net annual pure premium and reserve model.We can deduce the pricing formulas of the various products under the stochastic interest rate.Finally,simulation inspect above the life insurance products by the Monte Carlo simulation method,so as to get the reasonable pricing points of the premium and reserve.Based on the stochastic interest rate,this paper provides the basis for Insurance companies avoiding interest rate risk and regulators evaluating liability reserve funds.