Dynamic Financial Analysis: Classification, Conception, and Implementation

27 Pages Posted: 13 Dec 2005

See all articles by Martin Eling

Martin Eling

University of St. Gallen - Institute of Insurance Economics; University of Saint Gallen - School of Finance (SoF)

Thomas Parnitzke

University of St. Gallen - SEPS: Economics and Political Sciences

Abstract

Dynamic financial analysis (DFA) models an insurance company's cash flow in order to forecast assets, liabilities, and ruin probabilities, as well as full balance sheets for different scenarios. In the last years DFA has become an important tool for the analysis of an insurance company's financial situation. The following article considers three aspects: First, we want to show the main drivers why DFA is of special importance today. Second, we classify DFA in the context of asset liability management and analyze its fundamental concepts. However, upon taking a closer look at DFA, we identify several implementation problems that have not yet been adequately considered in the literature. Thus, we finally discuss these areas, in particular the generation of random numbers and the modeling of nonlinear dependencies in a DFA framework.

Keywords: Asset Liability Management, Dynamic Financial Analysis, Simulation, Random Number Generation, Copulas

JEL Classification: C15, G22

Suggested Citation

Eling, Martin and Parnitzke, Thomas, Dynamic Financial Analysis: Classification, Conception, and Implementation . Risk Management and Insurance Review, Forthcoming. Available at SSRN: https://ssrn.com/abstract=869273

Martin Eling (Contact Author)

University of St. Gallen - Institute of Insurance Economics ( email )

Kirchlistrasse 2
St. Gallen, 9010
Switzerland

University of Saint Gallen - School of Finance (SoF) ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Thomas Parnitzke

University of St. Gallen - SEPS: Economics and Political Sciences ( email )

Rosenbergstrasse 51
St. Gallen, St. Gallen CH-9000
Switzerland

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