Pricing and hedging equity-linked life insurance contracts beyond the classical paradigm: The principle of equivalent forward preferences

Research output: Contribution to journalArticle


By applying the principle of equivalent forward preferences, this paper revisits the pricing and hedging problems for equity-linked life insurance contracts. The equity-linked contingent claim depends on, not only the future lifetime of the policyholder, but also the performance of the reference portfolio in the financial market for the segregated account of the policyholder. 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. Numerical illustration is provided for the zero volatility case. The derived prices and hedging strategies are also compared with classical results in the literature.

Original languageEnglish (US)
Pages (from-to)93-107
Number of pages15
JournalInsurance: Mathematics and Economics
StatePublished - Sep 2019



  • Equity-linked life insurance
  • Forward utility preferences
  • Indifference approach
  • Pricing and hedging
  • Random horizon BSDEs

ASJC Scopus subject areas

  • Statistics and Probability
  • Economics and Econometrics
  • Statistics, Probability and Uncertainty

Cite this