Higher order Polynomial Technique of Measuring Interest Rate Intensity: A Bridge Between Life Insurance Valuation and Investment

Abstract

The current method of estimating the force of interest does not have the potential to account for small interest rates; hence it is less suitable for actuarial valuations. The paper attempts to suggest refinements to the existing method to capture interest rate dynamics accurately for actuarial valuation as the objective. The empirical underpinnings of instantaneous interest rate model are explored to conduct deep stress analysis through model equations and assess the degree to which the change in interest rate intensities can influence the long-run outcomes of some insurer’s financial instruments. The findings provide insight into the robustness of these products in diverse interest rate environments, highlighting key factors that govern their sensitivity. Although, both the estimated and its limiting values coincide within an equilibrium interval ...