Description: ongoing discussion of the proper interest rate to use in discounting liability cash flows to reflect credit risk of the insurer in a fair value accounting system

Description: Exploration of sources of volatility in retiree health valuations, noting how volatility arises and might be mitigated, with discussion of valuation parameters more problematic for retiree health benefits than for pensions. Three significant influences on retiree health valuation volatility are covered-- changes in benefit level, fluctuations in cost level, and alterations in eligibility for, or duration of, benefit – and attention focused on the last two. Specific conclusions result in recommendations, which are supported by practical examples contrasting volatile measurement results with those likely from the recommended practices. Theoretical discussion includes health claim variation, health trend usage, financial economics, option pricing, discount rates, and deterministic vs. stochastic modeling.

Description: We consider Libor market model and calibration process. We estimate some interest rate derivatives such as Caps and Swaptions. We use Monte Carlo methods with appropriate dynamics under spot measure and forward measure. Imposing martingale discretization property, the same quantities are estimated again to see a contrast or discrepancy in light of confidence interval. Based on algorithms discussed in the paper, “Arbitrage-free discretizations of lognormal forward Libor and swap rate models” by Glasserman, P and Zhao, X 2000, the algorithms are implemented in excel VBA. Starting with current market data such as FRAs and Bond Prices, we describe steps involved to estimate the price of interest rate derivatives such as Caps and Swaptions, which would be beneficial to the practitioners in the industry.

Description: Diverse Risks 2016 Call for Essays