Numerical Simulation for Asset-Liability Management in Life Insurance

T. Gerstner, M. Griebel, M. Holtz, R. Goschnick and M. Haep ()
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T. Gerstner: Universität Bonn, Institut für Numerische Simulation
M. Griebel: Universität Bonn, Institut für Numerische Simulation
M. Holtz: Universität Bonn, Institut für Numerische Simulation
R. Goschnick: Zürich Gruppe Deutschland
M. Haep: Zürich Gruppe Deutschland

A chapter in Mathematics – Key Technology for the Future, 2008, pp 319-341 from Springer

Abstract: Abstract New regulations and stronger competitions have increased the demand for stochastic asset-liability management (ALM) models for insurance companies in recent years. In this article, we propose a discrete time ALM model for the simulation of simplified balance sheets of life insurance products. The model incorporates the most important life insurance product characteristics, the surrender of contracts, a reserve-dependent bonus declaration, a dynamic asset allocation and a two-factor stochastic capital market. All terms arising in the model can be calculated recursively which allows an easy implementation and efficient evaluation of the model equations. The modular design of the model permits straightforward modifications and extensions to handle specific requirements. In practise, the simulation of stochastic ALM models is usually performed by Monte Carlo methods which suffer from relatively low convergence rates and often very long run times, though. As alternatives to Monte Carlo simulation, we here propose deterministic integration schemes, such as quasi-Monte Carlo and sparse grid methods for the numerical simulation of such models. Their efficiency is demonstrated by numerical examples which show that the deterministic methods often perform much better than Monte Carlo simulation as well as by theoretical considerations which show that ALM problems are often of low effective dimension.

Keywords: Monte Carlo; Life Insurance; Sparse Grid; Brownian Bridge; Balance Sheet Item (search for similar items in EconPapers)
Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprchp:978-3-540-77203-3_20

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DOI: 10.1007/978-3-540-77203-3_20

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