Christian Furrer: Change of measure techniques for scaled insurance cash flows

Abstract

Incidental policyholder behavior, including free policy conversion and stochastic retirement, may have a significant impact on the market value of a life insurance contract; consequently, models should account for this. However, the inclusion of incidental policyholder behavior typically leads to duration effects and thus an increase in computational complexity. In this talk, I show how change of measure techniques à la Föllmer can be used to conveniently deal with this added layer of complication.