Abstract
Premium settlement and calculation of reserves and capital requirements are typically based on worst or just bad case assumptions on interest rates, mortality rates, and other transition rates. If interest and transition rates are chosen independently from each other, the worst, i.e. the reserve maximizing one, can be found by means of dynamic programming. Here, we generalize this idea by choosing the interest and transition rates from a set that allows for mutual dependence. In general, finding the wort case is then much more complicated, but we characterize a set of relatively tractable problems and present a series of examples from this set. Our approach with mutual dependence is relevant e.g. for internal modeling for Solvency II.
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