Pricing Life Annuities By Using Fuzzy Technical Interest Rate

Life insurance future financial commitments depend on variables such as the age of the insured, lifetime, and technical (guaranteed) interest rate. Life annuity insurance is one type of life insurance. Life annuity pricing models must consider number of variabales, some of which are subject to change in the future and uncertain presently, including demographic events and financial variables. In standard life insurance mathematics, the uncertainty of demographic phenomena is considered as stochastic and the corresponding probabilities are obtained from life tables. Recent research in actuarial science has focused on formalizing uncertainties related to the economic parameters by means of random variables and stochastic processes. The most important of those parameters is, undoubtedly, the discount rates used to price policies. This paper has developed life annuity pricing models with stochastic representation of mortality and fuzzy quantification of interest rates, as a measurement of uncertain parameters such as interest rate. Therefore, the present value of life annuities is modeled using fuzzy random variables that can explain certain related measures: mathematical expectation, variance, standard deviation, distribution function, and quantiles.