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SAFE-SIDE SCENARIOS FOR FINANCIAL AND BIOMETRICAL RISK

Published online by Cambridge University Press:  10 July 2013

Marcus C. Christiansen  and
Mogens Steffensen
Marcus C. Christiansen*
Affiliation:
Institut für Versicherungswissenschaften, Universität Ulm, D-89069 Ulm, Germany
Mogens Steffensen
Affiliation:
Department of Mathematical Sciences, University of Copenhagen, DK-2100 Copenhagen, Denmark
*
E-mail: [email protected]
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Abstract

Premium settlement and calculation of reserves and capital requirements are typically based on worst- or just bad-case assumptions on interest rates, mortality rates, and other transition rates between states defined according to the insurance benefits. If interest and transition rates are chosen independently from each other, the worst choice, i.e. the combination of interest rates and transition rates that maximizes the reserve, can be found by dynamic programming. Here, we generalize this idea by choosing the interest and transition rates from a set that allows for mutual dependence. In general, finding the worst case is much more complicated in this situation, but we characterize a set of relatively tractable problems and present a series of examples from this set. Our approach with mutual dependence is relevant e.g. for internal models in Solvency II.

Keywords

Worst-case scenariosinterest and transition ratesdependencefirst-order basiscapital requirement
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 43 , Issue 3 , September 2013 , pp. 323 - 357
Copyright
Copyright © ASTIN Bulletin 2013 

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