An Actuarial Approach for Modeling Pandemic Risk

This article proposes a model for pandemic risk and two stochastic extensions. It 1 is designed for actuarial valuation of insurance plans providing healthcare and death benefits. 2 The core of our approach relies on a deterministic model that is an efficient alternative to the 3 susceptible-Infected-Recovered (SIR) method. This model explains the evolution of the first waves 4 of COVID-19 in Belgium, Germany, Italy and Spain. Furthermore, it is analytically tractable for fair 5 pure premium calculation. In a first extension, we replace the time by a gamma stochastic clock. 6 This approach randomizes the timing of the epidemic peak. A second extension consists in adding a 7 Brownian noise and a jump process to explain the erratic evolution of the population of confirmed 8 cases. The jump component allows for local resurgences of the epidemic.