Article
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Pricing Life Contingencies Linked to Impaired Life Expectancies Using Intuitionistic Fuzzy Parameters
Version 1
: Received: 8 December 2023 / Approved: 12 December 2023 / Online: 12 December 2023 (11:03:13 CET)
A peer-reviewed article of this Preprint also exists.
Andrés-Sánchez, J.D. Pricing Life Contingencies Linked to Impaired Life Expectancies Using Intuitionistic Fuzzy Parameters. Risks 2024, 12, 29. Andrés-Sánchez, J.D. Pricing Life Contingencies Linked to Impaired Life Expectancies Using Intuitionistic Fuzzy Parameters. Risks 2024, 12, 29.
Abstract
Several life contingency agreements are based on the assumption that policyholders have impaired life expectancy attributable to factors such as lifestyle, social class, or preexisting health issues. Quantifying two crucial variables, augmented death probabilities and the discount rate of projected cash flows, is essential for pricing such agreements. Information regarding the correct values of these parameters is subject to vagueness and imprecision, which further intensifies if impairments must be considered. This study proposes modelling mortality and interest rates using a generalization of fuzzy numbers (FNs), known as intuitionistic fuzzy numbers (IFNs). Consequently, this paper extends the literature on life contingency pricing with fuzzy parameters, where uncertainty in variables, such as interest rates and death probabilities, is modelled using FNs. While FNs introduce epistemic uncertainty, the use of IFNs adds bipolarity to the analysis by incorporating both positive and negative information regarding actuarial variables. Our analysis focuses on two agreements involving policyholders with impaired life expectancy: determining the annuity payment in a substandard annuity and pricing a life settlement over a whole life insurance policy. In particular, we emphasize modelling interest rates and survival probabilities using triangular intuitionistic fuzzy numbers (TIFNs) owing to their ease of interpretation and implementation.
Keywords
substandard annuities; life settlement pricing; intuitionistic fuzzy sets; intuitionistic fuzzy numbers
Subject
Business, Economics and Management, Finance
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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