Actuarial and Financial Modeling

  • Mario V. Wüthrich
  • Michael Merz
Part of the Springer Finance book series (FINANCE)


In this chapter we lay the basis for actuarial valuation. We introduce the notion of financial risk and insurance technical risk. Such a split is crucial because it explains which risks can be hedged at financial markets and which risks cannot be hedged and need to be absorbed by the insurance company. This will result in the split of the filtration into a financial filtration and an insurance technical filtration which describe the corresponding flow of information. Moreover, the previously introduced state price deflator receives a deeper meaning in terms of a financial deflator and a probability distortion. The former describes price formation at financial markets, the latter describes margins for non-hedgeable risks.


Cash Flow Financial Market Product Structure Price Process Insurance Liability 
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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  • Mario V. Wüthrich
    • 1
  • Michael Merz
    • 2
  1. 1.RiskLab, Department of MathematicsETH ZurichZurichSwitzerland
  2. 2.Faculty for Economic and Social Studies, Department of Business AdministrationUniversity of HamburgHamburgGermany

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