Abstract
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.
Original language | English (US) |
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Pages (from-to) | 14-27 |
Number of pages | 14 |
Journal | Insurance: Mathematics and Economics |
Volume | 76 |
DOIs | |
State | Published - Sep 2017 |
Keywords
- Actuarial valuation
- Fair valuation of insurance liabilities
- Market-consistent valuation
- Mean–variance hedging
- Solvency II
ASJC Scopus subject areas
- Statistics and Probability
- Economics and Econometrics
- Statistics, Probability and Uncertainty