On the Calculation of the Solvency Capital Requirement Based on Nested Simulations*

Daniel Bauer, Andreas Reuss and Daniela Singer

ASTIN Bulletin, 2012, vol. 42, issue 2, 453-499

Abstract: Within the European Union, risk-based funding requirements for insurance companies are currently being revised as part of the Solvency II project. However, many life insurers struggle with the implementation, which to a large extent appears to be due to a lack of know-how regarding both, stochastic modeling and efficient techniques for the numerical implementation. The current paper addresses these problems by providing a mathematical framework for the derivation of the required risk capital and by reviewing different alternatives for the numerical implementation based on nested simulations. In particular, we seek to provide guidance for practitioners by illustrating and comparing the different techniques based on numerical experiments.

Date: 2012
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