Abstract
In the previous chapter we have defined the valuation portfolio for insurance liability cash flows. This valuation portfolio can be viewed as a replicating portfolio for insurance liabilities in terms of financial instruments. In this chapter we analyze financial risks which come from the fact that the valuation portfolio and the real existing asset portfolio on the asset side of the balance sheet may differ. This then leads to the notion of solvency. Moreover, we discuss the Margrabe option which hedges financial risks and we compare the price of the Margrabe option to the price of target capital as it is typically used in insurance practice.
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© 2010 Springer-Verlag Berlin Heidelberg
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Wüthrich, M.V., Bühlmann, H., Furrer, H. (2010). Financial risks. In: Market-Consistent Actuarial Valuation. EAA Series. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-14852-1_4
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DOI: https://doi.org/10.1007/978-3-642-14852-1_4
Publisher Name: Springer, Berlin, Heidelberg
Print ISBN: 978-3-642-14851-4
Online ISBN: 978-3-642-14852-1
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