Description: This paper presents a methodology of pricing the guaranteed minimum death benefit of a variable annuity in a market model with jumps. Recent developments in the stock market make variable annuities very attractive products from the insured point of view, but less attractive for insurers. The insured still has the possibility of investment benefits, while avoiding the risk of a stock market collapse. The insurer wants to minimize its risk and yet sell a competitive product. The financial market model consists of one riskless asset and one risky asset whose price jumps in proportions J at some random times T which correspond to the jump times of a Poisson process. The model describes incomplete markets and there is no perfect hedging. In the second part of the paper, we describe a possible method of risk analysis for binomial tree models.

Description: This paper discusses the theoretic framework of modeling captial markets: index-based composition methodology and statisical procedure of model construction and extension: wavelets-based financial signal processing technique. It also discusses the implications and applications, measuring the market uncertainty and volatility highlighting the S&P 500 as an example.

Description: In a stochastic world consideration of only a few deterministic scenarios can potentially be dangerous. The aim of the present research is to study the computation of the cost of mismatch using stochastic interest rate models instead of scenario testing. In this paper, two commonly used Stochastic interest rate models are considered: the one introduced by Vasicek 1977 and the one proposed by Cox, Ingersoll and Ross 1985.

Description: This paper first derives the fair participation rate based on a fair value of the equity-indexed annuity EIA. Then using risk measures, a new participation rate is obtained, based on the tail loading of the hedging error distribution. Risk management strategies reducing risk related to the hedging error are also presented. A detailed numerical analysis is performed for a point-to-point EIA.

Description: Prior work indicates that a regime-switching stochastic model with randomized regime parameters creates a more plausible set of extreme paths than do the usual stochastic interest rate models. Generalizing the Black-Karasinski model by randomizing the mean reversion target provides an example. Better to understand such models, as well as to calibrate their parameters without trial and error runs of a stochastic model, this paper uses an asymptotic expansion to estimate the moments of the integrated stochastic process over time. Mention is made of a family of related asymptotic expansions that could be of wider interest.

Description: This paper incorporates a jump-diffusion process into the original Lee-Carter model, and uses it to forecast mortality rates and analyze mortality securitization.

Description: This article provides an overview of the different types of real world interest rate scenarios that practitioners use in the life insurance industry and explores different approaches to building those generators.

Description: We propose asymptotically correct two-sided bounds for random sums where the number of summands has an arbitrary distribution which can be viewed as ruin probabilities or accumulated claim sizes in various risk processes. The bounds are fairly new and they reveal the real accuracy of some well-known and widely used asymptotic formulas. It turns out that this accuracy can be poor and the range where these formulas give appropriate approximations depends on the shape of the tail distribution of the summands. This dependence is examined in the research.

Description: Principle-based reserving requires modeling assets and liabilities across a range of scenarios to assess the sufficiency of assets when determining reserves, a major shift from the current formulaic framework. These changes will require valuation actuaries to evolve their skill set by heightening their focus on creative analysis, gaining deeper understanding of complex projections and clearly communicating drivers of reserve movements to stakeholders in order to influence strategic decision-making. The panelists will discuss the way that they see the role of the valuation actuary changing in response to the change in focus in reserving requirements. They will also discuss successful characteristics along with best practices for understanding and explaining results in the new paradigm. The audience will be given the opportunity to interact through polling and facilitated discussion of their stories, experiences and observations.

Description: The article discusses that drawbacks of the HJM Heath-Jarrow-Morton class of stochastic interest models and suggests the use of the Longstaff-Schwartz string model. It describes the use and benefits of the Lonstaff-Schwartz string model.