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Asset Pricing Models and Insurance Ratemaking

Published online by Cambridge University Press:  29 August 2014

J. David Cummins
J. David Cummins*
Affiliation:
The Wharton School of the University of Pennsylvania, Philadelphia, USA
*
Department of Insurance, The Wharton School of the University of Pennsylvania, 3641 Locust Walk, Philadelphia, PA 19104-6218, USA.
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Abstract

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This paper provides an introduction to asset pricing theory and its applications in non-life insurance. The first part of the paper presents a basic review of asset pricing models, including discrete and continuous time capital asset pricing models (the CAPM and ICAPM), arbitrage pricing theory (APT), and option pricing theory (OPT). The second part discusses applications in non-life insurance. Among the insurance models reviewed are the insurance CAPM, discrete time discounted cash flow models, option pricing models, and more general continuous time models. The paper concludes that the integration of actuarial and financial theory can provide major advances in insurance pricing and financial management.

Keywords

Asset pricing modelsfinancial pricing modelsinsurance pricingportfolio theoryoption pricingcapital asset pricing modelarbitrage pricing theorydiscounted cash flow modelsinsurance default risk
Type
Invited Paper
Information
ASTIN Bulletin: The Journal of the IAA , Volume 20 , Issue 2 , November 1990 , pp. 125 - 166
Copyright
Copyright © International Actuarial Association 1990

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