Replicating portfolio approach to capital calculation

The replicating portfolio (RP) approach to the calculation of capital for life insurance portfolios is an industry standard. The RP is obtained from projecting the terminal loss of discounted asset–liability cash flows on a set of factors generated by a family of financial instruments that can be efficiently simulated. We provide the mathematical foundations and a novel dynamic and path-dependent RP approach for real-world and risk-neutral sampling. We show that our RP approach yields asymptotically consistent capital estimators if the chaotic representation property holds. We illustrate the tractability of the RP approach by three numerical examples.


Published in:
Finance and Stochastics, 22, 1, 181-203
Year:
Jan 01 2018
Keywords:
Other identifiers:
Additional link:
Laboratories:




 Record created 2018-10-15, last modified 2019-03-17


Rate this document:

Rate this document:
1
2
3
 
(Not yet reviewed)