Extended reduced-form framework for non-life insurance. (14th September 2022)

• Record Type: Journal Article
• Authors: Biagini, Francesca; Zhang, Yinglin
• Is Part Of: Advances in applied probability. Volume 54:Number 3(2022)
• Page Start: 945
• Page End: 973
• Publication Date: 2022-09-14
• Subjects: Non-life insurance -- reduced-form framework -- marked point process -- benchmark approach -- filtration dependence -- market-consistent valuation -- risk mitigation; 91G05 -- 91G80 -- 60H30; Probabilities -- Periodicals; Stochastic models -- Periodicals; Electronic journals; Periodicals; 519.2
• DOI: 10.1017/apr.2021.60
• Languages: English
• ISSNs: 0001-8678

Abstract

Abstract: In this paper we propose a general framework for modeling an insurance liability cash flow in continuous time, by generalizing the reduced-form framework for credit risk and life insurance. In particular, we assume a nontrivial dependence structure between the reference filtration and the insurance internal filtration. We apply these results for pricing and hedging non-life insurance liabilities in hybrid financial and insurance markets, while taking into account the role of inflation under the benchmarked risk-minimization approach. This framework offers at the same time a general and flexible structure, and an explicit and treatable pricing-hedging formula.