Market value margin via mean-variance hedging

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      <subfield code="a">Market value margin via mean-variance hedging</subfield>
      <subfield code="c">Andreas Tsanakas, Mario V. Wüthrich, Ales Cerný</subfield>
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      <subfield code="a">We use meanvariance hedging in discrete time in order to value an insurance liability. The prediction of the insurance liability is decomposed into claims development results, that is, yearly deteriorations in its conditional expected values until the liability is finally settled. We assume the existence of a tradeable derivative with binary pay-off written on the claims development result and available in each development period. General valuation formulas are stated and, under additional assumptions, these valuation formulas simplify to resemble familiar regulatory cost-of-capital-based formulas. However, adoption of the meanvariance framework improves upon the regulatory approach by allowing for potential calibration to observed market prices, inclusion of other tradeable assets, and consistent extension to multiple periods. Furthermore, it is shown that the hedging strategy can also lead to increased capital efficiency.</subfield>
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      <subfield code="d">Belgium : ASTIN and AFIR Sections of the International Actuarial Association</subfield>
      <subfield code="x">0515-0361</subfield>
      <subfield code="g">02/09/2013 Volumen 43 Número 3 - septiembre 2013 </subfield>
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