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Locally Risk-minimizing Hedging of Insurance Payment Streams

Published online by Cambridge University Press:  17 April 2015

Martin Riesner
Martin Riesner*
Affiliation:
Abteilung für Zahlentheorie und Wahrscheinlichkeitstheorie, Fakultät für Mathematik und Wirtschaftswissenschaften Universität Ulm, Helmholtzstrasse 18, 89069 Ulm, Germany, Tel.: +497315023514, Fax: +497315023516, E-mail: [email protected]
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Abstract

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For the martingale case Föllmer and Sondermann (1986) introduced a unique admissible risk-minimizing hedging strategy for any square-integrable contingent claim H. Schweizer (1991) developed their theory further to the semimartingale case introducing the notion of local risk-minimization. Møller (2001) extended the theory of Föllmer and Sondermann (1986) to hedge general payment processes occurring mainly in insurance. We expand local risk-minimization to the theory of hedging general payment processes and derive such a hedging strategy for general unit-linked life insurance contracts in a general Lévy process financial market.

Keywords

Local risk-minimizationsemimartingaleshedgingincomplete marketLévy processunit-linked life insuranceMarkov chain
Type
Articles
Information
ASTIN Bulletin: The Journal of the IAA , Volume 37 , Issue 1 , May 2007 , pp. 67 - 91
Copyright
Copyright © ASTIN Bulletin 2007

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