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Approximations of multi-period liability values by simple formulas

Author

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  • Engler, Nils
  • Lindskog, Filip

Abstract

This paper is motivated by computational challenges arising in multi-period valuation in insurance. Aggregate insurance liability cashflows typically correspond to stochastic payments several years into the future. However, insurance regulation requires that capital requirements are computed for a one-year horizon, by considering cashflows during the year and end-of-year liability values. This implies that liability values must be computed recursively, backwards in time, starting from the year of the most distant liability payments. Solving such backward recursions with paper and pen is rarely possible, and numerical solutions give rise to major computational challenges.

Suggested Citation

  • Engler, Nils & Lindskog, Filip, 2025. "Approximations of multi-period liability values by simple formulas," Insurance: Mathematics and Economics, Elsevier, vol. 123(C).
    • Handle: RePEc:eee:insuma:v:123:y:2025:i:c:s0167668725000599
    DOI: 10.1016/j.insmatheco.2025.103112
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    More about this item

    Keywords

    Valuation; Multi-period models; Conditional weak convergence;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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