Abstract
This article considers the problem of computing risk measures in a life insurance context by means of a lattice-based approach. The main advantage of the proposed model relies on the fact that the dynamics of the risk factors may be approximated by a unique lattice along the whole time horizon, thus guaranteeing the same computational cost of a standard pricing problem. This allows the author to develop an efficient model that computes accurate estimates of the considered risk measures. TOPICS:Risk management, derivatives, options, equity portfolio management Key Findings ▪ This article shows how lattice-based models can be used to evaluate risk measures of life insurance contracts. ▪ A bivariate lattice is constructed to approximate the loss function of an equity-linked policy with or without mortality risk. ▪ Numerical results show that the model computes accurate value at risk and conditional value at risk values in all the considered cases.
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