Seminar by Alfred Chong

Please Note: This seminar will be given in-person.

Forward Preferences in Insurance

Pioneered by Musiela and Zariphopoulou (2007), forward preferences were developed to rectify classical utility maximization problems, which fix a priori the horizon of interest, the model of dynamics, and the future utility function of agent. These assumptions further deviate from the insurance practice, since the horizon of a product is particularly long, there is usually a random time, such as a future lifetime, being involved, and a mortality model could be revised based on an updated health examination.

By applying the principle of equivalent forward preferences, the first part of this talk revisits the pricing and hedging problems for equity-linked life insurance contracts. For both zero volatility and non-zero volatility forward utility preferences, prices and hedging strategies of the contract are represented by solutions of random horizon backward stochastic differential equations.

The second part of this talk considers the problem of optimal dynamic asset allocations for defined contribution pension funds. Forward utility preferences are constructed which, together with the investment strategy, can be represented relative to a pseudo fund under an exogenous baseline strategy.