Fair Dynamic Valuation of Insurance Liabilities via Convex Hedging

A general class of fair valuations, which are model-consistent (mark-to-model), market-consistent (mark-to-market) and time-consistent, was introduced in Barigou et al. (2019) under a multi-period setting. In this paper, we generalize the convex hedging approach proposed in Dhaene et al. (2017) to a multi-period framework and investigate the realization of fair dynamic valuations via a convex hedge-based (CHB) approach. We show that the classes of fair dynamic valuations and CHB dynamic valuations are equivalent. Moreover, we show how to implement the CHB dynamic valuations through a backward iterations scheme with the application of some specific convex hedgers.

Keywords: fair dynamic valuation, convex hedging, time-consistency, market-consistent valuation, model-consistent valuation

JEL Classification: G22

Suggested Citation: Suggested Citation

Chen, Ze and Chen, Bingzheng and Dhaene, Jan and Yang, Tianyu, Fair Dynamic Valuation of Insurance Liabilities via Convex Hedging (June 11, 2019). Insurance: Mathematics and Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=3359178 or http://dx.doi.org/10.2139/ssrn.3359178