Stochastic Analysis and Applications: The value of a liability cash flow in discrete time subject to capital requirements

  • Date: –11:15
  • Location: ITC 2345
  • Lecturer: Filip Lindskog, SU
  • Organiser: Matematiska institutionen
  • Contact person: Erik Ekström
  • Seminarium

Abstract: The aim of this talk is to define the market-consistent multi-period

value of an insurance liability cash flow in discrete time subject to repeated

capital requirements, and explore its properties. In line with current

regulatory frameworks, the presented approach is based on a hypothetical

transfer of the original liability and a replicating portfolio to an empty

corporate entity, whose owner must comply with repeated one-period capital

requirements but has the option to terminate the ownership at any time. The

value of the liability is defined as the no-arbitrage price of the cash flow to

the policyholders, optimally stopped from the owner's perspective, taking

capital requirements into account. The value is computed as the solution to a

sequence of coupled optimal stopping problems or, equivalently, as the solution

to a backward recursion.


Based on joint work with Hampus Engsner and Kristoffer Lindensjö.