Actuarial and Financial Modeling

Mario V. Wüthrich and Michael Merz
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Mario V. Wüthrich: ETH Zurich
Michael Merz: University of Hamburg

Chapter Chapter 6 in Financial Modeling, Actuarial Valuation and Solvency in Insurance, 2013, pp 155-167 from Springer

Abstract: Abstract In this chapter we lay the basis for actuarial valuation. We introduce the notion of financial risk and insurance technical risk. Such a split is crucial because it explains which risks can be hedged at financial markets and which risks cannot be hedged and need to be absorbed by the insurance company. This will result in the split of the filtration into a financial filtration and an insurance technical filtration which describe the corresponding flow of information. Moreover, the previously introduced state price deflator receives a deeper meaning in terms of a financial deflator and a probability distortion. The former describes price formation at financial markets, the latter describes margins for non-hedgeable risks.

Keywords: Cash Flow; Financial Market; Product Structure; Price Process; Insurance Liability (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:spr:sprfcp:978-3-642-31392-9_6

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DOI: 10.1007/978-3-642-31392-9_6

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