Inside the Solvency 2 Black Box: Net Asset Values and Solvency Capital Requirements with a Least-Squares Monte-Carlo Approach

Insurance: Mathematics and Economics, Volume 71, November 2016, Pages 15–26

29 Pages Posted: 14 Dec 2014 Last revised: 11 Feb 2017

Anthony Floryszczak

SMABTP

Olivier Le Courtois

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control

Mohamed Majri

SMABTP

Date Written: June 1, 2016

Abstract

The calculation of Net Asset Values and Solvency Capital Requirements in a Solvency 2 context - and the derivation of sensitivity analyses with respect to the main financial and actuarial risk drivers - is a complex procedure at the level of a real company, where it is illusory to be able to rely on closed-form formulas. The most general approach to performing these computations is that of nested simulations. However, this method is also not realistic because of its huge computation resources demand. The least-squares Monte Carlo method has recently been suggested as a way to overcome these difficulties. The object of the present paper is to show that this method is indeed relevant for Solvency 2 computations at the level of a company.

Keywords: Net Asset Value, Solvency Capital Requirement, Solvency 2, Least-Squares Monte Carlo, Order Statistics, Participating Contract

Suggested Citation

Floryszczak, Anthony and Le Courtois, Olivier Arnaud and Majri, Mohamed, Inside the Solvency 2 Black Box: Net Asset Values and Solvency Capital Requirements with a Least-Squares Monte-Carlo Approach (June 1, 2016). Insurance: Mathematics and Economics, Volume 71, November 2016, Pages 15–26. Available at SSRN: https://ssrn.com/abstract=2537408 or http://dx.doi.org/10.2139/ssrn.2537408

Anthony Floryszczak

SMABTP ( email )

114 avenue emile zola
paris, 75015
France

Olivier Arnaud Le Courtois (Contact Author)

EM Lyon (Ecole de Management de Lyon) - Department of Economics, Finance, Control ( email )

23, av. Guy de Collongue
69134 Ecully Cedex
France

Mohamed Majri

SMABTP ( email )

114 avenue emile zola
paris, 75015
France

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