Author, as appears in the article.: de Andrés-Sánchez, J; Puchades, LGV
Department: Gestió d'Empreses
URV's Author/s: De Andrés Sànchez, Jorge
Keywords: Triangular fuzzy numbers Trapezoidal approximations Life settlement pricing Fuzzy mortality multiplier Fuzzy internal rate of return Approximations of triangular fuzzy numbers triangular fuzzy numbers risk regression performance numbers mortality model mathematics insurance policies fuzzy mortality multiplier fuzzy internal rate of return european options approximations of triangular fuzzy numbers
Abstract: Existing literature asserts that the growth of life settlement (LS) markets, where they exist, is hampered by limited policyholder participation and suggests that to foster this growth appropriate pricing of LS transactions is crucial. The pricing of LSs relies on quantifying two key variables: the insured's mortality multiplier and the internal rate of return (IRR). However, the available information on these parameters is often scarce and vague. To address this issue, this article proposes a novel framework that models these variables using triangular fuzzy numbers (TFNs). This modelling approach aligns with how mortality multiplier and IRR data are typically provided in insurance markets and has the advantage of offering a natural interpretation for practitioners. When both the mortality multiplier and the IRR are represented as TFNs, the resulting LS price becomes a FN that no longer retains the triangular shape. Therefore, the paper introduces three alternative triangular approximations to simplify computations and enhance interpretation of the price. Additionally, six criteria are proposed to evaluate the effectiveness of each approximation method. These criteria go beyond the typical approach of assessing the approximation quality to the FN itself. They also consider the usability and comprehensibility for financial analysts with no prior knowledge of FNs. In summary, the framework presented in this paper represents a significant advancement in LS pricing. By incorporating TFNs, offering several triangular approximations and proposing goodness criteria of them, it addresses the challenges posed by limited and vague data, while also considering the practical needs of industry practitioners.
Thematic Areas: Software Matemática / probabilidade e estatística Interdisciplinar Engenharias iv Engenharias iii Engenharias ii Engenharias i Computer science, interdisciplinary applications Computer science, artificial intelligence Ciência de alimentos Ciência da computação Biotecnología Administração pública e de empresas, ciências contábeis e turismo
licence for use: https://creativecommons.org/licenses/by/3.0/es/
Author's mail: jorge.deandres@urv.cat jorge.deandres@urv.cat
Author identifier: 0000-0002-7715-779X 0000-0002-7715-779X
Record's date: 2024-08-03
Papper version: info:eu-repo/semantics/publishedVersion
Licence document URL: https://repositori.urv.cat/ca/proteccio-de-dades/
Papper original source: Applied Soft Computing. 148
APA: de Andrés-Sánchez, J; Puchades, LGV (2023). Life settlement pricing with fuzzy parameters. Applied Soft Computing, 148(), -. DOI: 10.1016/j.asoc.2023.110924
Entity: Universitat Rovira i Virgili
Journal publication year: 2023
Publication Type: Journal Publications