TY - JOUR
T1 - Fair valuation of insurance liabilities
T2 - Merging actuarial judgement and market-consistency
AU - Dhaene, Jan
AU - Stassen, Ben
AU - Barigou, Karim
AU - Linders, Daniël
AU - Chen, Ze
N1 - Funding Information:
Jan Dhaene, Ben Stassen, Karim Barigou and Daniël Linders acknowledge the financial support of the Onderzoeksfonds KU Leuven ( GOA/13/002 ). Jan Dhaene acknowledges the support of CIAS (China Institute of Actuarial Science) at CUFE (Central University of Finance and Economics), Beijng, China , during his chair-professorship at this university in 2016. Ze Chen acknowledges the support of the Bilateral Cooperation Project Tsinghua University - KU Leuven ( ISP/14/01TS ) and the Life Insurance Project from the Insurance Institute of China ( JIAOBAO2016-06 ). The authors would like to thank Alexander Kukush from the University of Kiev and Bo Li from Nankai University for useful discussions and helpful comments. Finally, the authors sincerely thank the anonymous referees for their remarks and suggestions.
Publisher Copyright:
© 2017 Elsevier B.V.
PY - 2017/9
Y1 - 2017/9
N2 - In this paper, we investigate the fair valuation of liabilities related to an insurance policy or portfolio in a single period framework. We define a fair valuation as a valuation which is both market-consistent (mark-to-market for any hedgeable part of a claim) and actuarial (mark-to-model for any claim that is independent of financial market evolutions). We introduce the class of hedge-based valuations, where in a first step of the valuation process, a ‘best hedge’ for the liability is set up, based on the traded assets in the market, while in a second step, the remaining part of the claim is valuated via an actuarial valuation. We also introduce the class of two-step valuations, the elements of which are very closely related to the two-step valuations which were introduced in Pelsser and Stadje (2014). We show that the classes of fair, hedge-based and two-step valuations are identical.
AB - In this paper, we investigate the fair valuation of liabilities related to an insurance policy or portfolio in a single period framework. We define a fair valuation as a valuation which is both market-consistent (mark-to-market for any hedgeable part of a claim) and actuarial (mark-to-model for any claim that is independent of financial market evolutions). We introduce the class of hedge-based valuations, where in a first step of the valuation process, a ‘best hedge’ for the liability is set up, based on the traded assets in the market, while in a second step, the remaining part of the claim is valuated via an actuarial valuation. We also introduce the class of two-step valuations, the elements of which are very closely related to the two-step valuations which were introduced in Pelsser and Stadje (2014). We show that the classes of fair, hedge-based and two-step valuations are identical.
KW - Actuarial valuation
KW - Fair valuation of insurance liabilities
KW - Market-consistent valuation
KW - Mean–variance hedging
KW - Solvency II
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U2 - 10.1016/j.insmatheco.2017.06.003
DO - 10.1016/j.insmatheco.2017.06.003
M3 - Article
AN - SCOPUS:85030464812
SN - 0167-6687
VL - 76
SP - 14
EP - 27
JO - Insurance: Mathematics and Economics
JF - Insurance: Mathematics and Economics
ER -