Insurance valuation: A two-step generalised regression approach
From MaRDI portal
Publication:5067889
Abstract: Current approaches to fair valuation in insurance often follow a two-step approach, combining quadratic hedging with application of a risk measure on the residual liability, to obtain a cost-of-capital margin. In such approaches, the preferences represented by the regulatory risk measure are not reflected in the hedging process. We address this issue by an alternative two-step hedging procedure, based on generalised regression arguments, which leads to portfolios that are neutral with respect to a risk measure, such as Value-at-Risk or the expectile. First, a portfolio of traded assets aimed at replicating the liability is determined by local quadratic hedging. Second, the residual liability is hedged using an alternative objective function. The risk margin is then defined as the cost of the capital required to hedge the residual liability. In the case quantile regression is used in the second step, yearly solvency constraints are naturally satisfied; furthermore, the portfolio is a risk minimiser among all hedging portfolios that satisfy such constraints. We present a neural network algorithm for the valuation and hedging of insurance liabilities based on a backward iterations scheme. The algorithm is fairly general and easily applicable, as it only requires simulated paths of risk drivers.
Recommendations
- Fair valuation of insurance liabilities: merging actuarial judgement and market-consistency
- Insurance valuation: a computable multi-period cost-of-capital approach
- Fair dynamic valuation of insurance liabilities: a loss averse convex hedging approach
- Fair dynamic valuation of insurance liabilities: merging actuarial judgement with market- and time-consistency
- Fair dynamic valuation of insurance liabilities via convex hedging
Cites work
- scientific article; zbMATH DE number 5529013 (Why is no real title available?)
- scientific article; zbMATH DE number 6971094 (Why is no real title available?)
- M-quantiles
- AN OLD‐NEW CONCEPT OF CONVEX RISK MEASURES: THE OPTIMIZED CERTAINTY EQUIVALENT
- Asset-liability management for long-term insurance business
- Asymmetric Least Squares Estimation and Testing
- Best-estimate claims reserves in incomplete markets
- Convex measures of risk and trading constraints
- Deep hedging of long-term financial derivatives
- Deep learning
- Dynamic programming and mean‐variance hedging in discrete time
- Efficient hedging: cost versus shortfall risk
- Equal risk pricing of derivatives with deep hedging
- Fair dynamic valuation of insurance liabilities: a loss averse convex hedging approach
- Fair dynamic valuation of insurance liabilities: merging actuarial judgement with market- and time-consistency
- Fair valuation of insurance liabilities: merging actuarial judgement and market-consistency
- Fair valuation of insurance liability cash-flow streams in continuous time: applications
- Fair valuation of insurance liability cash-flow streams in continuous time: theory
- Financial modeling, actuarial valuation and solvency in insurance
- Generalized quantiles as risk measures
- Hedging Equity-Linked Life Insurance Contracts
- Hedging by sequential regressions revisited
- Hedging guarantees in variable annuities under both equity and interest rate risks
- Indifference pricing of insurance contracts in a product space model
- Insurance valuation: a computable multi-period cost-of-capital approach
- Making and evaluating point forecasts
- Market consistent valuations with financial imperfection
- Market value margin via mean-variance hedging
- Market-consistent actuarial valuation
- Market-consistent valuation of insurance liabilities by cost of capital
- Minimizing CVaR in global dynamic hedging with transaction costs
- Multilayer feedforward networks are universal approximators
- On convex principles of premium calculation
- Optimal hedging when the underlying asset follows a regime-switching Markov process
- Pricing equity-linked life insurance contracts with multiple risk factors by neural networks
- Quantile hedging
- Quantile regression.
- Regression Quantiles
- Risk measures with the CxLS property
- Risk tuning with generalized linear regression
- Risk-minimizing hedging strategies for insurance payment processes
- TIME‐CONSISTENT AND MARKET‐CONSISTENT EVALUATIONS
- The difference between LSMC and replicating portfolio in insurance liability modeling
- The value of a liability cash flow in discrete time subject to capital requirements
- Time-consistent and market-consistent actuarial valuation of the participating pension contract
- Valuation of hybrid financial and actuarial products in life insurance by a novel three-step method
- Variance-Optimal Hedging in Discrete Time
Cited in
(4)- Parametric expectile regression and its application for premium calculation
- The 3-step hedge-based valuation: fair valuation in the presence of systematic risks
- New challenges in the interplay between finance and insurance. Abstracts from the workshop held October 1--6, 2023
- Two-step risk analysis in insurance ratemaking
This page was built for publication: Insurance valuation: A two-step generalised regression approach
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q5067889)
