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The University of Southampton
CORMSIS Centre for Operational Research, Management Sciences and Information Systems

CORMSIS seminar by Ralf Werner Event

Time:
16:00 - 17:00
Date:
22 September 2014
Venue:
Building 02, Room 3041

For more information regarding this event, please telephone Prof. Joerg Fliege on x28453 or email J.Fliege@soton.ac.uk .

Event details

The first of CORMSIS seminar series for the academic year 2014-2015.

Title: Analysis of popular replicating portfolio approaches

Abstract: We consider the most popular approaches for the construction of replicating portfolios for life insurance liabilities known as cash flow matching and terminal value matching. Solutions to these problems are derived analytically and a detailed comparison is provided. It is shown that the (unique) solutions have fair value equal to the fair value of liabilities. Then, the problems are generalized by relaxing the requirement of static replication to allow for dynamic investment strategies in a numeraire asset with zero present value. A relationship between the solutions to these generalized problems is established, which sheds new light on the relation of the original problems. Finally, it is proved that the fair values of the optimal solutions to the generalized problems remain equal to the fair value of liabilities. Based on numerical examples it is shown that the dynamic investment strategies can be reasonably approximated by linear regression, such that an out-of-sample implementation, as e.g. needed for MCEV and Solvency II calculations, is possible.

Co-authors: This is joint work with Jan Natolski (Augsburg University)

Speaker information

Prof. Dr. Ralf Werner,Augsburg University,Ralf Werner is currently a partner and Scientific Advisor at the consulting company DEVnet as well as full professor for business mathematics at Augsburg University. Prior to that he was heading the global Risk Methods & Valuation department at a large European real estate bank where he was in charge of risk methodology, financial engineering and economic capital modelling. Ralf also held various positions at an international insurance group and with an asset manager as consultant, financial engineer and prop trader.

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