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Locally risk-minimizing hedging strategies for unit-linked life insurance contracts under a regime switching Lévy model. (English) Zbl 1271.62247
Summary: This paper extends the model and analysis in that of N. Vandaele and M. Vanmaele [Insur. Math. Econ. 42, No. 3, 1128–1137 (2008; Zbl 1141.91549)]. We assume that parameters of the Lévy process which models the dynamic of risky asset in the financial market depend on a finite state Markov chain. The state of the Markov chain can be interpreted as the state of the economy. Under the regime switching Lévy model, we obtain the locally risk-minimizing hedging strategies for some unit-linked life insurance products, including both the pure endowment policy and the term insurance contract.

MSC:
62P05 Applications of statistics to actuarial sciences and financial mathematics
60J70 Applications of Brownian motions and diffusion theory (population genetics, absorption problems, etc.)
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