Fast Computation of Risk Measures for Variable Annuities With Additional Earnings by Conditional Moment Matching

Privault, Nicolas; Wei, Xiao

doi:10.1017/asb.2017.33

Cited by 4 publications

(1 citation statement)

References 16 publications

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“…In using today's computer technology and new and sophisticated numerical methods to solve these PDEs, one may speed up the often time-consuming calculations, cf. Feng (2014) and Privault and Wei (2018). Note that all these calculations can be done with Monte Carlo simulations, which in practice are still the most common approach.…”

Section: Comparison With Calculation Of Risk Measures For Variable An...mentioning

confidence: 99%

Analyzing the Impact of Time Horizon, Volatility and Profit Margins on Solvency Capital: Proposing a New Model for the Global Regulation of the Insurance Industry

Cole¹,

Müller²

2018

JIR

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The European Solvency II regime requires a solvency capital covering risks with a given shortfall probability of 1/200=0.5% on a one-year time horizon, which is extremely short compared to the contractual terms in traditional life insurances, as well as the settlement periods of several decades in some casualty branches. This approach undermines the importance of a high return margin and, given a risk-averse approach to management, may lead to an overall riskier business strategy in the long run. In light of this, we cannot help but ask whether such a short time horizon is capable of providing a meaningful guideline for a sustainable business and risk management that has a long-term perspective. In response to this question, we present a new model for assessing the evolution of the equity of an insurance company and calculating the probability that the initial equity of an insurance company will be depleted during a given time period. This model demonstrates that insolvencies mostly do not occur in the first year. Therefore, if one only considers a one-year window, as is the case under Solvency II, the risk will be underestimated. Even more serious is that the business will be managed too cautiously without aiming for a suitably high profit margin, which significantly reduces the risk only in the long term.

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Section: Comparison With Calculation Of Risk Measures For Variable An...mentioning

confidence: 99%

Analyzing the Impact of Time Horizon, Volatility and Profit Margins on Solvency Capital: Proposing a New Model for the Global Regulation of the Insurance Industry

Cole¹,

Müller²

2018

JIR

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Conditional Moment Matching and Stratified Approximation for Pricing and Hedging Periodic-Premium Variable Annuities

Wei,

2024

Methodol Comput Appl Probab

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A Discrete-Time Approach to Evaluate Path-Dependent Derivatives in a Regime-Switching Risk Model

Russo

2020

Risks

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This paper provides a discrete-time approach for evaluating financial and actuarial products characterized by path-dependent features in a regime-switching risk model. In each regime, a binomial discretization of the asset value is obtained by modifying the parameters used to generate the lattice in the highest-volatility regime, thus allowing a simultaneous asset description in all the regimes. The path-dependent feature is treated by computing representative values of the path-dependent function on a fixed number of effective trajectories reaching each lattice node. The prices of the analyzed products are calculated as the expected values of their payoffs registered over the lattice branches, invoking a quadratic interpolation technique if the regime changes, and capturing the switches among regimes by using a transition probability matrix. Some numerical applications are provided to support the model, which is also useful to accurately capture the market risk concerning path-dependent financial and actuarial instruments.

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Fast Computation of Risk Measures for Variable Annuities With Additional Earnings by Conditional Moment Matching

Cited by 4 publications

References 16 publications

Analyzing the Impact of Time Horizon, Volatility and Profit Margins on Solvency Capital: Proposing a New Model for the Global Regulation of the Insurance Industry

Analyzing the Impact of Time Horizon, Volatility and Profit Margins on Solvency Capital: Proposing a New Model for the Global Regulation of the Insurance Industry

Conditional Moment Matching and Stratified Approximation for Pricing and Hedging Periodic-Premium Variable Annuities

A Discrete-Time Approach to Evaluate Path-Dependent Derivatives in a Regime-Switching Risk Model

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