European Actuarial Journal

, Volume 5, Issue 1, pp 55–77 | Cite as

Best-estimate claims reserves in incomplete markets

  • Sebastian Happ
  • Michael Merz
  • Mario V. Wüthrich
Original Research Paper


We give a rigorous definition of best-estimates reserves for insurance liabilities in a general multiperiod financial market setting. In this general multiperiod financial market setting we describe payoff spaces and optimal dynamic hedging strategies. Based on this optimal dynamic hedging strategies we define best-estimate reserves for insurance liabilities. One crucial observation is that we need the notion of optimal hedging and state-price deflators because there does not necessarily exist an equivalent probability measure under which best-estimate reserves can be calculated.


Best-estimate reserves Dynamic hedging sequential local risk minimization State-price deflator Incomplete market Technical provisions Risk margin 


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Copyright information

© DAV / DGVFM 2014

Authors and Affiliations

  • Sebastian Happ
    • 1
  • Michael Merz
    • 1
  • Mario V. Wüthrich
    • 2
    • 3
  1. 1.Faculty of Business AdministrationUniversity of HamburgHamburgGermany
  2. 2.Department of MathematicsETH Zurich, RiskLabZurichSwitzerland
  3. 3.Swiss Finance InstituteZurichSwitzerland

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