Market-Consistent Actuarial Valuation
It is a challenging task to read the balance sheet of an insurance company. This derives from the fact that different positions are often measured by different yardsticks. Assets, for example, are mostly valued at market prices whereas liabilities are oft
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Mario V. Wüthrich r Hans Bühlmann Hansjörg Furrer
Market-Consistent Actuarial Valuation
Second, revised and enlarged edition
r
Mario V. Wüthrich RiskLab, Switzerland Department of Mathematics ETH Zurich CH-8092 Zurich Switzerland [email protected]
Hansjörg Furrer Quantitative Risk Management Eidgenössische Finanzmarktaufsicht FINMA CH-3003 Bern Switzerland
Hans Bühlmann RiskLab, Switzerland Department of Mathematics ETH Zurich CH-8092 Zurich Switzerland [email protected]
ISSN 1869-6929 e-ISSN 1869-6937 ISBN 978-3-642-14851-4 e-ISBN 978-3-642-14852-1 DOI 10.1007/978-3-642-14852-1 Springer Heidelberg Dordrecht London New York Library of Congress Control Number: 2010935600 Mathematics Subject Classification (2000): 91B30, 91B28 © Springer-Verlag Berlin Heidelberg 2007, 2010 This work is subject to copyright. All rights are reserved, whether the whole or part of the material is concerned, specifically the rights of translation, reprinting, reuse of illustrations, recitation, broadcasting, reproduction on microfilm or in any other way, and storage in data banks. Duplication of this publication or parts thereof is permitted only under the provisions of the German Copyright Law of September 9, 1965, in its current version, and permission for use must always be obtained from Springer. Violations are liable to prosecution under the German Copyright Law. The use of general descriptive names, registered names, trademarks, etc. in this publication does not imply, even in the absence of a specific statement, that such names are exempt from the relevant protective laws and regulations and therefore free for general use. Cover design: VTEX, Vilnius Printed on acid-free paper Springer is part of Springer Science+Business Media (www.springer.com)
Preface to the first edition
The balance sheet of an insurance company is often difficult to interpret. This derives from the fact that assets and liabilities are measured by different yardsticks. Assets are mostly valued at market prices; liabilities - as far as they relate to contractual obligations to the insured - are measured by established actuarial methods. Since, in general, there is no trading market for insurance policies, the question arises how these actuarial methods need to be changed to give values - as if these markets existed. The answer to this question is “Market-Consistent Actuarial Valuation”. These lecture notes explain the logical mathematical framework that leads to market-consistent values for insurance liabilities. In Chapter 1 we motivate the use of
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