Approximations of multi-period liability values by simple formulas

Nils Engler and Filip Lindskog

Insurance: Mathematics and Economics, 2025, vol. 123, issue C

Abstract: This paper is motivated by computational challenges arising in multi-period valuation in insurance. Aggregate insurance liability cashflows typically correspond to stochastic payments several years into the future. However, insurance regulation requires that capital requirements are computed for a one-year horizon, by considering cashflows during the year and end-of-year liability values. This implies that liability values must be computed recursively, backwards in time, starting from the year of the most distant liability payments. Solving such backward recursions with paper and pen is rarely possible, and numerical solutions give rise to major computational challenges.

Keywords: Valuation; Multi-period models; Conditional weak convergence (search for similar items in EconPapers)
JEL-codes: G22 G32 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:insuma:v:123:y:2025:i:c:s0167668725000599

DOI: 10.1016/j.insmatheco.2025.103112

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