On the forward rate concept in multi-state life insurance

Abstract

Similarly to the notion of modeling credit risk by using forward credit default spread rates, mortality risk in life insurance contracts is nowadays often modeled by using forward mortality (spread) rates. More recently, this concept has also been discussed for more complex life insurances that include multiple lives or intermediate states that correspond to the health status of the insured. For consistency purposes and for technical reasons, most authors assume that the underlying financial and demographic events are stochastically independent.