D.08.Kreps

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Author:
Exam9_2012
ID:
139872
Filename:
D.08.Kreps
Updated:
2012-05-09 17:16:45
Tags:
reinsr swap put
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Description:
Investment Equivalent Reinsurance Pricing
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  1. Reinsurance Risk Load parameters
    • Investment criteria
    • Loss distribution
    • UW conservatism
  2. Usefulness of reins risk load model
    • prices are usually market driven
    • used to choose whether to write (reinsr) or accept (insr)
    • priced on stand alone basis -> overstates risk load
  3. Reinsr risk load constraints
  4. Reinsr risk load: swap
    • invest funds in rf
    • cost = loss of inv inc, gain = risk reduction
  5. Reinsr risk load: put
    • invest in target inv w put to sell @ rf
    • cost = put option, gain = incr return & decr variance
  6. Reinsr risk load: adjustments to scenario
    • more freq pmts / diff pmt pattern
    • high XS or rare events have non-zero rates w low p(loss)
    • pooling -> only use model if not pooling or only risk
    • adjust for spot rate
    • incorporate correlation

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