Time-Consistent Actuarial Valuations
AbstractRecent theoretical results establish that time-consistent valuations (i.e. pricing operators) can be created by backward iteration of one-period valuations. In this paper we investigate the continuous-time limits of well-known actuarial premium principles when such backward iteration procedures are applied. We show that the one-period variance premiumprinciple converges to the non-linear exponential indifference valuation. Furthermore, we study the convergence of the one-period standard-deviation principle and establish that the Cost-of-Capital principle, which is widely used by the insurance industry, converges to the same limit as the standard-deviation principle. Finally, we study the connections between our time-consistent pricing operators, Good Deal Bound pricing and pricing under model ambiguity.
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Bibliographic InfoPaper provided by arXiv.org in its series Papers with number 1109.1751.
Date of creation: Sep 2011
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Web page: http://arxiv.org/
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-16 (All new papers)
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