The value of a liability cash flow in discrete time subject to capital requirements
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Publication:2282964
DOI10.1007/S00780-019-00408-0zbMATH Open1429.91277arXiv1808.03328OpenAlexW2976911912WikidataQ127199098 ScholiaQ127199098MaRDI QIDQ2282964FDOQ2282964
Authors: Hampus Engsner, Kristoffer Lindensjö, Filip Lindskog 
Publication date: 27 December 2019
Published in: Finance and Stochastics (Search for Journal in Brave)
Abstract: The aim of this paper is to define the market-consistent multi-period value of an insurance liability cash flow in discrete time subject to repeated capital requirements, and explore its properties. In line with current regulatory frameworks, the approach presented is based on a hypothetical transfer of the original liability and a replicating portfolio to an empty corporate entity whose owner must comply with repeated one-period capital requirements but has the option to terminate the ownership at any time. The value of the liability is defined as the no-arbitrage price of the cash flow to the policyholders, optimally stopped from the owner's perspective, taking capital requirements into account. The value is computed as the solution to a sequence of coupled optimal stopping problems or, equivalently, as the solution to a backward recursion.
Full work available at URL: https://arxiv.org/abs/1808.03328
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Actuarial mathematics (91G05) Portfolio theory (91G10) Corporate finance (dividends, real options, etc.) (91G50) Stopping times; optimal stopping problems; gambling theory (60G40)
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Cited In (10)
- Valuation of hybrid financial and actuarial products in life insurance by a novel three-step method
- On deposit volumes and the valuation of non-maturing liabilities
- Financial position and performance in IFRS 17
- Fair valuation of insurance liability cash-flow streams in continuous time: applications
- Multiple-prior valuation of cash flows subject to capital requirements
- New challenges in the interplay between finance and insurance. Abstracts from the workshop held October 1--6, 2023
- Insurance valuation: A two-step generalised regression approach
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- Insurance valuation: a computable multi-period cost-of-capital approach
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