Description: The goal of this paper is to dispel the prevailing belief that American-style options cannot be valued efficiently in a simulation model by presenting a general algorithm for such valuation, and thus remove what has been considered a major impediment to the use of simulation models for valuing financial instruments. Discussions of this paper are included.

Description: This paper presents an algorithm for valuing American options in a path simulation model. It demonstrates the accuracy by an example involving a put option on a non-dividend-paying stock for which the exact premium could be determined. It shows how the use of simulation models can be useful in valuing a broker-dealer's derivative book and analyzing the asset-liability condition of financial intermediaries.

Description: This paper, originally published in 1992 in the Transactions of Society of Actuaries Vol. 44, deals with a topic that is becoming increasingly important to actuaries in most fields of practice. “Without relying on formulas, this paper presents the important concepts underlying the theory of arbitrage-free pricing of interest-rate-contingent cash flows.” This paper, by James A. Tilley, won the 1992-93 Annual Prize, and the Halmstad Prize for 1992. The paper includes written discussion and the author’s review of the discussions.

Description: This paper investigates how the concepts of asset-liability matching can be used to shape investment strategy. From Transactions of Society of Actuaries 1980, Vol. 32.

Description: After reading the Panjer-Bellhouse paper in the Proceedings of the Ball State University Conference, I wondered whether their technique could be used when a realistic investment process was assumed. I believe that such an extension is necessary if the theory is to have any practical application I have had little success in trying to do this. I have decided to present some thoughts and to invite others with different perspectives to bring them to fruition.

Description: Without relying on formulas, this paper presents the important concepts underlying the theory of arbitrage-free pricing of interest-rate-contingent cash flows: absence of opportunities for riskless arbitrage, completeness of markets, relative prices that do not depend on individual investors' subjective views or risk preferences, and expected-value pricing in the risk-neutral world. Using these concepts, the paper then describes the steps required to build continuous stochastic models of interest rates, including models that are either partially or fully arbitrage free.