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A Study for Stochastic Lapse Model Under IFRS 17

  • Journal of Insurance and Finance
  • 2019, 30(2), pp.117-145
  • DOI : 10.23842/jif.2019.30.2.004
  • Publisher : Korea Insurance Research Institute
  • Research Area : Social Science > Business Management
  • Received : February 26, 2019
  • Accepted : May 16, 2019
  • Published : May 31, 2019

OUH, CHANGSU 1 Sangwook Song 2

1한양대학교
2금융감독원

Accredited

ABSTRACT

The needs for calculating more precise lapse risk are increasing as lapse risk will be newly applied in risk adjustments and risk categories when IFRS 17 and K-ICS (Korean Insurance Capital Standard) will be introduced. This study researches a stochastic lapse model which can be used in computing precise lapse risk in IFRS 17 and K-ICS. We defines continuation function and force of lapse, and we derives a stochastic lapse model which can be composed by a stochastic term following Ornstein-Uhlenbeck process and a trend term presenting lapse term structure. This study derives three lapse models according to constant, dynamic, and stepwise standard deviations. The models can reflect term structure of lapse. This study generates 1,000 stochastic lapse scenarios for 240 months using force of lapse by simple method.

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