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Fair dynamic valuation of insurance liabilities: Merging actuarial judgement with market- and time-consistency

Karim Barigou, Ze Chen and Jan Dhaene ()

Insurance: Mathematics and Economics, 2019, vol. 88, issue C, 19-29

Abstract: In this paper, we investigate the fair valuation of insurance liabilities in a dynamic multi-period setting. We define a fair dynamic valuation as a valuation which is actuarial (mark-to-model for claims independent of financial market evolutions), market-consistent (mark-to-market for any hedgeable part of a claim) and time-consistent, extending the work of Dhaene et al. (2017) and Barigou and Dhaene (2019). We provide a complete hedging characterization for fair dynamic valuations. Moreover, we show how to implement fair dynamic valuations through a backward iterations scheme combining risk minimization methods from mathematical finance with standard actuarial techniques based on risk measures.

Keywords: Fair dynamic valuation; Time-consistency; Solvency II; Market-consistent valuation; Actuarial valuation (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.insmatheco.2019.05.003

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