Dynamics of solvency risk in life insurance liabilities

Marcus Christiansen, Matthias Albrecht Fahrenwaldt

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

We describe the time dynamics of the solvency level of life insurance contracts by representing the solvency level and the underlying risk sources as the solution of a forward–backward system. This leads to an additive decomposition of the total solvency level with respect to time and different risk sources. The decomposition turns out to be an intuitive tool to study risk sensitivities. We study the forward–backward system and discuss two methods to obtain explicit representations: via linear partial differential equations and via a Monte Carlo method based on Malliavin calculus.

Original languageEnglish
Pages (from-to)763-792
Number of pages30
JournalScandinavian Actuarial Journal
Volume2016
Issue number9
Early online date20 Mar 2015
DOIs
Publication statusPublished - 20 Oct 2016

Keywords

  • backward stochastic differential equation
  • life insurance risk management
  • Malliavin calculus
  • solvency level

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