Financial engineering methods in insurance
AbstractThe aim of this Ph.D. thesis is to apply specific statistical tools known and used in finance and risk management to the area of actuarial mathematics. The need for an interdisciplinary approach in both actuarial world and risk management has emerged and has recently been addressed by numerous publications as well as in scientific and professional events and meetings within the actuarial world. This approach is a must in a sophisticated market with complex financial instruments. Examples of such an approach include equity-linked life insurance contracts, options on mortality, and attempts to implement methodologies like Risk Adjusted Return on Capital as a principal pricing rule by more and more insurance companies. There is an ongoing effort in finance and in actuarial science to learn and integrate the statistical and mathematical tools used by the two traditional streams into a single, commonly applicable, toolbox. In this paper I want to explore two such paths. The first is the concept of failure probability that can be used as a base model for future returns in the insurance line of business. The second is an attempt to use option pricing techniques to hedge a portfolio of life insurance contracts against systematic mortality risk.
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Bibliographic InfoPaper provided by Hugo Steinhaus Center, Wroclaw University of Technology in its series HSC Research Reports with number HSC/06/02.
Length: 68 pages
Date of creation: 2006
Date of revision:
Risk theory; Insurance; Option pricing; Mortality option; Failure probability;
Find related papers by JEL classification:
- C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
- C46 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Specific Distributions
- G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
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- De Vylder, F. & Goovaerts, M. J., 1988. "Recursive calculation of finite-time ruin probabilities," Insurance: Mathematics and Economics, Elsevier, vol. 7(1), pages 1-7, January.
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