Pricing life settlements in the secondary market using fuzzy internal rate of return

In this paper‎, ‎fuzzy set theory is implemented to model internal rate of return for calculating the price of life ‎settlements‎‎. ‎D‎eterministic‎, ‎probabilistic and stochastic ‎approaches ‎is ‎used ‎to ‎price life ‎settlements‎ in the secondary market for the Iranian insurance industry‎. ‎Research findings were presented and analyzed for whole life insurance policies using the interest rates announced in the supplement of Regulation No‎. ‎۶۸ and Iranian life table‎, ‎which recently has been issued to be used by insurance companies‎. ‎Also‎, ‎the results of three approaches were compared with surrender value‎, ‎which indicates the surrender value is lower than ‎the fuzzy‎ price calculated based on the probabilistic and stochastic approaches and it is higher than the price calculated based on the deterministic approach‎. ‎Therefore‎, ‎selling life settlements in the secondary market ‎in ‎Iran‎ based on ‎calculated fuzzy price using ‎probabilistic and stochastic approaches will benefit the ‎policyholder‎. ‎Also‎,‎ ‎the price is obtained in the form of an interval using the fuzzy sets theory ‎and the investor can decide which price is suitable for this policy based on financial knowledge‎‎‎. ‎‎Furthermore, ‎in ‎order ‎to ‎show validity of the proposed fuzzy method,‎‎‎ the findings ‎are‎ ‎compared ‎to ‎the results of ‎using ‎‎the random ‎internal‎‎ ‎rate ‎of return‎.‎

Keywords:

Life settlements‎ Fuzzy random variables‎ life expectancy‎ Secondary market‎ , ‎ Adjustment multiplier