In this paper the problem of the market consistent valuation of a life insurance policies is considered, mainly focusing on portfolios of typical profit-sharing contracts. The financial component of benefits provided by these policies is modelled as a contingent claim payoff and is priced using the no-arbitrage approach in complete markets. This allows to correctly measure the Value of Business in Force of outstanding portfolios, taking into account the cost of the embedded options corresponding to the minimum return guarantees provided by the policies. Numerical examples are provided using a two-factor stochastic pricing model with interest rate and stock price risk, calibrated on market data. A typical policy portfolio is valuated under alternative investment strategies for the segregated fund backing the policies, also allowing for the accounting rules which determine the fund return.

Market consistent valuation for insurance solvency: measuring financial and technical risks / DE FELICE, Massimo; Moriconi, F.. - In: GIORNALE DELL'ISTITUTO ITALIANO DEGLI ATTUARI. - ISSN 0390-5780. - 67:1/2(2004), pp. 95-117.

Market consistent valuation for insurance solvency: measuring financial and technical risks

DE FELICE, Massimo;
2004

Abstract

In this paper the problem of the market consistent valuation of a life insurance policies is considered, mainly focusing on portfolios of typical profit-sharing contracts. The financial component of benefits provided by these policies is modelled as a contingent claim payoff and is priced using the no-arbitrage approach in complete markets. This allows to correctly measure the Value of Business in Force of outstanding portfolios, taking into account the cost of the embedded options corresponding to the minimum return guarantees provided by the policies. Numerical examples are provided using a two-factor stochastic pricing model with interest rate and stock price risk, calibrated on market data. A typical policy portfolio is valuated under alternative investment strategies for the segregated fund backing the policies, also allowing for the accounting rules which determine the fund return.
2004
01 Pubblicazione su rivista::01a Articolo in rivista
Market consistent valuation for insurance solvency: measuring financial and technical risks / DE FELICE, Massimo; Moriconi, F.. - In: GIORNALE DELL'ISTITUTO ITALIANO DEGLI ATTUARI. - ISSN 0390-5780. - 67:1/2(2004), pp. 95-117.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/1063
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