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hal-00502847, version 1

From deterministic to stochastic surrender risk models: impact of correlation crises on economic capital

Stéphane Loisel () 1, Xavier Milhaud () 1, 2

European Journal of Operational Research 214, 2 (2011) 348-357

  • 1:  Laboratoire de Sciences Actuarielle et Financière (SAF)

  • Université Claude Bernard - Lyon I : EA2429 50, avenue Tony Garnier 69007 Lyon France
  • 2:  Axa Cessions

  • AXA France

Bibliographic reference

  • Type of document: Articles in peer-reviewed journal
  • Subject:
    Humanities and Social Sciences/Economies and finances
    Mathematics/Probability
  • Title: From deterministic to stochastic surrender risk models: impact of correlation crises on economic capital
  • Abstract: In this paper we raise the matter of considering a stochastic modeling of the surrender rate instead of the classical S-shaped deterministic curve (in function of the spread), still used in almost all insurance companies. A stochastic model in which surrenders are conditionally independent with respect to a S-curve disturbance would be tempting in some extreme scenarii, especially to address the question of the lack of data. However, we explain why this conditional independence between policyholders, which has the advantage to be the simplest assumption, looks particularly maladaptive when the spread increases. Indeed the correlation between policyholders' decisions is most likely to increase in this situation. We suggest and develop a simple model which integrates those phenomena. With stochastic orders it is possible to compare it to the conditional independence approach qualitatively. In an partially internal Solvency II model, we quantify the impact of the correlation phenomenon on a real life portfolio for a global risk management strategy.
  • Fulltext language: English
  • Production date: 2010-07-08
  • DOI: 10.1016/j.ejor.2011.04.038
  • Journal:
    European Journal of Operational Research
    Publisher Elsevier
    ISSN 0377-2217 
  • Audience: international
  • Publication date: 2011
  • Volume: 214
  • Issue: 2
  • Page, identifiant, ...: 348-357
  • Keyword(s): risk management – applied probability – life insurance – surrender risk – correlation risk
  • ANR Project:
    Project Id ANR-08-BLAN-0314-01

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  • From: Stéphane Loisel <>
  • Submitted on: Thursday, 15 July 2010 21:40:07
  • Updated on: Sunday, 28 October 2012 10:29:12