Market Consistency and WMC [18]

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Bullet points include: Solvency II Directive Article 77: “The best estimate shall correspond to the probability-weighted average of future cash-flows, taking account of the time value of money (expected present value of future cash-flows), using the relevant risk-free interest rate term structure” Natural actuarial approach, if analytical solution not available, is to estimate probability-weighted cash-flows using simulation techniques. I.e. create lots of scenarios about how the future will evolve. Known in actuarial world as using an Economic Scenario Generator

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