Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5076263 | Insurance: Mathematics and Economics | 2016 | 10 Pages |
Abstract
We analyse various features of the Smith-Wilson method used for discounting under the EU regulation Solvency II, with special attention to hedging. In particular, we show that all key rate duration hedges of liabilities beyond the Last Liquid Point will be peculiar. Moreover, we show that there is a connection between the occurrence of negative discount factors and singularities in the convergence criterion used to calibrate the model. The main tool used for analysing hedges is a novel stochastic representation of the Smith-Wilson method.
Related Topics
Physical Sciences and Engineering
Mathematics
Statistics and Probability
Authors
Andreas Lagerås, Mathias Lindholm,