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Extended reduced-form framework for non-life insurance

Published online by Cambridge University Press:  14 June 2022

Francesca Biagini*
Affiliation:
LMU Munich
Yinglin Zhang*
Affiliation:
LMU Munich
*
*Postal address: Department of Mathematics, LMU Munich, Theresienstraße, 39, 80333 Munich, Germany.
*Postal address: Department of Mathematics, LMU Munich, Theresienstraße, 39, 80333 Munich, Germany.

Abstract

In this paper we propose a general framework for modeling an insurance liability cash flow in continuous time, by generalizing the reduced-form framework for credit risk and life insurance. In particular, we assume a nontrivial dependence structure between the reference filtration and the insurance internal filtration. We apply these results for pricing and hedging non-life insurance liabilities in hybrid financial and insurance markets, while taking into account the role of inflation under the benchmarked risk-minimization approach. This framework offers at the same time a general and flexible structure, and an explicit and treatable pricing-hedging formula.

Type
Original Article
Copyright
© The Author(s), 2022. Published by Cambridge University Press on behalf of Applied Probability Trust

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