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On Valuation and Risk Management at the Interface of Insurance and Finance

Published online by Cambridge University Press:  10 June 2011

T. Møller Ph.D.
T. Møller Ph.D.
Affiliation:
Laboratory of Actuarial Mathematics, University of Copenhagen, Universitetsparken 5, DK-2100 Copenhagen Ø, Denmark., Tel: +45 35 32 07 94, Fax: +45 35 32 07 72, Email: [email protected]
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Abstract

This paper reviews methods for hedging and valuation of insurance claims with an inherent financial risk, with special emphasis on quadratic hedging approaches and indifference pricing principles and their applications in insurance. It thus addresses aspects of the interplay between finance and insurance, an area which has gained considerable attention during the past years, in practice as well as in theory. Products combining insurance risk and financial risk have gained considerable market shares. Special attention is paid to unit-linked life insurance contracts, and it is demonstrated how these contracts can be valued and hedged by using traditional methods as well as more recent methods from incomplete financial markets such as risk-minimisation, mean-variance hedging, super-replication and indifference pricing with mean-variance utility functions.

Keywords

Actuarial Valuation PrinciplesFinancial RiskHedgingIncomplete MarketIndifference PricingUnit-Linked ContractsFinancial Stop-Loss Contracts
Type
Sessional meetings: papers and abstracts of discussions
Information
British Actuarial Journal , Volume 8 , Issue 4 , 01 October 2002 , pp. 787 - 827
Copyright
Copyright © Institute and Faculty of Actuaries 2002

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