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Extended reduced-form framework for non-life insurance
Published online by Cambridge University Press: 14 June 2022
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.
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- © The Author(s), 2022. Published by Cambridge University Press on behalf of Applied Probability Trust