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Benchmark-Neutral Risk-Minimization for insurance products and nonreplicable claims
Michael Schmutz, Eckhard Platen, Thorsten Schmidt
https://arxiv.org/abs/2506.19494

Benchmark-Neutral Risk-Minimization for insurance products and nonreplicable claims
In this paper we study the pricing and hedging of nonreplicable contingent claims, such as long-term insurance contracts like variable annuities. Our approach is based on the benchmark-neutral pricing framework of Platen (2024), which differs from the classical benchmark approach by using the stock growth optimal portfolio as the numéraire. In typical settings, this choice leads to an equivalent martingale measure, the benchmark-neutral measure. The resulting prices can be significantly lower …