Combining Fair Pricing and Capital Requirements for Non-Life Insurance Companies
Gatzert N, Schmeiser H (2008)
Publication Language: English
Publication Type: Journal article, Original article
Publication year: 2008
Journal
Publisher: Elsevier
Book Volume: 32
Pages Range: 2589-2596
Journal Issue: 10
DOI: 10.1016/j.jbankfin.2008.05.009
Abstract
The aim of this article is to identify fair equity-premium combinations for non-life insurers that satisfy solvency capital requirements imposed by regulatory authorities. In particular, we compare target capital derived using the value at risk concept as planned for Solvency II in the European Union with the tail value at risk concept as required by the Swiss Solvency Test. The model framework uses Merton's jump-diffusion process for the market value of liabilities and a geometric Brownian motion for the asset process; fair valuation is conducted using option pricing theory. We show that even if regulatory requirements are satisfied under different risk measures and parameterizations, the associated costs of insolvency - measured with the insurer's default put option value - can differ substantially.
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Switzerland (CH)How to cite
APA:
Gatzert, N., & Schmeiser, H. (2008). Combining Fair Pricing and Capital Requirements for Non-Life Insurance Companies. Journal of Banking & Finance, 32(10), 2589-2596. https://doi.org/10.1016/j.jbankfin.2008.05.009
MLA:
Gatzert, Nadine, and Hato Schmeiser. "Combining Fair Pricing and Capital Requirements for Non-Life Insurance Companies." Journal of Banking & Finance 32.10 (2008): 2589-2596.
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