Efficient valuation of SCR via a neural network approach

DOI10.1016/J.CAM.2016.10.005zbMATH Open1410.91268arXiv1610.01946OpenAlexW2527761280MaRDI QIDQ344299FDOQ344299

Authors: Seyed Amir Hejazi, Kenneth R. Jackson 

Publication date: 22 November 2016

Published in: Journal of Computational and Applied Mathematics (Search for Journal in Brave)

Abstract: As part of the new regulatory framework of Solvency II, introduced by the European Union, insurance companies are required to monitor their solvency by computing a key risk metric called the Solvency Capital Requirement (SCR). The official description of the SCR is not rigorous and has lead researchers to develop their own mathematical frameworks for calculation of the SCR. These frameworks are complex and are difficult to implement. Recently, Bauer et al. suggested a nested Monte Carlo (MC) simulation framework to calculate the SCR. But the proposed MC framework is computationally expensive even for a simple insurance product. In this paper, we propose incorporating a neural network approach into the nested simulation framework to significantly reduce the computational complexity in the calculation. We study the performance of our neural network approach in estimating the SCR for a large portfolio of an important class of insurance products called Variable Annuities (VAs). Our experiments show that the proposed neural network approach is both efficient and accurate.

Full work available at URL: https://arxiv.org/abs/1610.01946

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zbMATH Keywords

portfolio valuationvariable annuityneural networkspatial interpolationsolvency capital requirement (SCR)

Mathematics Subject Classification ID

Learning and adaptive systems in artificial intelligence (68T05)

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Cited In (10)

• Nested Monte Carlo simulation in financial reporting: a review and a new hybrid approach
• Risk management with local least squares Monte Carlo
• Spatiotemporal interpolation through an extension of differential evolution algorithm for agricultural insurance claims
• Addressing the economic and demographic complexity via a neural network approach: risk measures for reverse mortgages
• Machine learning techniques in nested stochastic simulations for life insurance
• Grouping of contracts in insurance using neural networks
• Neural networks meet least squares Monte Carlo at internal model data
• A neural network approach to efficient valuation of large portfolios of variable annuities
• Sample recycling method -- a new approach to efficient nested Monte Carlo simulations
• On the calculation of the solvency capital requirement based on nested simulations

Uses Software

• PMTK
• PRMLT

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