The valuation of stochastic insurance liabilities using a structural model approach

Masayasu Kanno ()
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Masayasu Kanno: Faculty of Business Administration, Kanagawa University, Hiratsuka, Kanagawa 259-1293, Japan

Journal of Financial Engineering (JFE), 2015, vol. 02, issue 01, 1-17

Abstract: Liability drives insurers' businesses. This paper examines the structural model approach of credit risk for the valuation of insurance liabilities and insurers' equity, and considers a stochastic process for liability. Grosen and J?rgensen's (2002) study presents the current approach taken by insurers; however, the model's structure is very simple, and its liability structure in particular has a deterministic time function. In contrast, we analyze a model that analytically evaluates an insurer's liability with the stochastic process. Furthermore, we analyze the model's default option originally presented by Myers and Read (2001).

Keywords: Stochastic liability valuation; structural model approach of credit risk; market consistent valuation (search for similar items in EconPapers)
Date: 2015
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DOI: 10.1142/S2345768615500075

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