  Economic variables play important roles in any economic model, and sudden and
dramatic changes exist in the financial market and economy. For this reason, to
price and hedge equity-linked life insurance products, including segregated
funds and unit-linked life insurance products on maximum price of several
assets, this paper introduces Bayesian Markov-Switching Vector Autoregressive
(MS-VAR) process. By assuming that a regime-switching process is generated by a
homogeneous Markov process and a residual process follows a heteroscedastic
model, we obtain joint distribution of endogenous variables and insured's
future lifetime random variable under risk-neutral probability probability
measure. Using the distribution function, we obtain net single premiums and
hedging formulas of the equity-linked life insurance products. An advantage of
our model is it depends on economic variables and is not complicated as
compared to previous papers.
