Articles producció científica> Gestió d'Empreses

Life settlement pricing with fuzzy parameters

  • Identification data

    Identifier: imarina:9331023
    Authors:
    de Andrés-Sánchez, JPuchades, LGV
    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.
  • Others:

    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
    Article's DOI: 10.1016/j.asoc.2023.110924
    Entity: Universitat Rovira i Virgili
    Journal publication year: 2023
    Publication Type: Journal Publications
  • Keywords:

    Computer Science, Artificial Intelligence,Computer Science, Interdisciplinary Applications,Software
    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
    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
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