IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/16333.html
   My bibliography  Save this paper

Asset Liability Management in Insurance Company

Author

Listed:
  • Giandomenico, Rossano

Abstract

The model, by using the option theory, determines the fair value of the policies life with different time of maturity and shows that the effective liabilities duration of an Insurance Company exposed to the default-risk is different from the duration of a default-free zero coupon bond with the same time of maturity. Furthermore, it shows that the value of equity can be immunized in a dynamic way with respect to the movement of the spot-rate by selling and purchasing the default-free bonds in the firm asset. Moreover, the equity value, by the right bond allocation, can be immunized without varying continually the weight of the bonds on the firm asset. Furthermore, it considers the surrender option and the mortally issue such that it corrects some pitfalls that are commonly encountered in the insurance industry.

Suggested Citation

  • Giandomenico, Rossano, 2006. "Asset Liability Management in Insurance Company," MPRA Paper 16333, University Library of Munich, Germany, revised Jan 2009.
  • Handle: RePEc:pra:mprapa:16333
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/18843/1/MPRA_paper_18843.pdf
    File Function: revised version
    Download Restriction: no

    File URL: https://mpra.ub.uni-muenchen.de/40057/1/MPRA_paper_40057.pdf
    File Function: revised version
    Download Restriction: no

    References listed on IDEAS

    as
    1. Briys, Eric & de Varenne, Fran├žois, 1997. "Valuing Risky Fixed Rate Debt: An Extension," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 32(02), pages 239-248, June.
    2. Duffie, Darrell & Singleton, Kenneth J, 1997. " An Econometric Model of the Term Structure of Interest-Rate Swap Yields," Journal of Finance, American Finance Association, vol. 52(4), pages 1287-1321, September.
    3. David F. Babbel & Craig Merrill, 1997. "Economic Valuation Models for Insurers," Center for Financial Institutions Working Papers 97-44, Wharton School Center for Financial Institutions, University of Pennsylvania.
    4. Geske, Robert, 1979. "The valuation of compound options," Journal of Financial Economics, Elsevier, vol. 7(1), pages 63-81, March.
    5. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    6. Geske, Robert & Johnson, Herb E, 1984. " The American Put Option Valued Analytically," Journal of Finance, American Finance Association, vol. 39(5), pages 1511-1524, December.
    7. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    8. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(04), pages 627-627, November.
    9. Giandomenico, Rossano, 2006. "Martingale Model," MPRA Paper 21973, University Library of Munich, Germany.
    10. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    11. Giandomenico, Rossano, 2006. "Pricing of the Policy Life in Absence of Default Risk and Asset Liability Management," MPRA Paper 18844, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Rossano Giandomenico, 2011. "Asset Liability Management for Banks," The IUP Journal of Bank Management, IUP Publications, vol. 0(4), pages 31-46, November.
    2. Giandomenico, Rossano, 2006. "Pricing of the Policy Life in Absence of Default Risk and Asset Liability Management," MPRA Paper 18844, University Library of Munich, Germany.
    3. Giandomenico, Rossano, 2008. "Valuing Coupon Bond Linked to Variable Interest Rate," MPRA Paper 21974, University Library of Munich, Germany.

    More about this item

    Keywords

    Contingent Claim; Duration; Immunization;

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:16333. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter). General contact details of provider: http://edirc.repec.org/data/vfmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.