Exact cash-account deflator for the G2++ model

Francesco Strati and Luca G. Trussoni ()
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Francesco Strati: KPMG Advisory SpA, Actuarial Services, Milan, Italy
Luca G. Trussoni: #x2020;LTLogics, Italy

International Journal of Financial Engineering (IJFE), 2020, vol. 07, issue 01, 1-14

Abstract: In this paper, we shall propose a Monte Carlo simulation technique applied to a G2++ model: even when the number of simulated paths is small, our technique allows to find a precise simulated deflator. In particular, we shall study the transition law of the discrete random variable:∫[t,t+Δt]x(τ)+y(τ)dτin the time span [t,t+Δt] conditional on the observation at time t, and we apply it in a recursive way to build the different paths of the simulation. We shall apply the proposed technique to the insurance industry, and in particular to the issue of pricing insurance contracts with embedded options and guarantees.

Keywords: Statistical simulation methods; insurance; actuarial studies (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S2424786320500097

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