On calculation of surplus value using stochastic modeling

Aldona Skucaite, Lituanie

Embedded value (EV) and one of its components - Surplus value (SV) - is one of the most important figures when estimating future profits of life insurance company. Usually it is assumed that processes of life insurance company are governed by multiple state homogeneous Markov process, however this is not always true in practice. In the paper we deal with the case when second order Markov chain is present at some parts of multiple state model. We present some shortcomings of deterministic Surplus value and propose stochastic model for calculation of Surplus value. While much attention now is paid to stochastic modeling of economic assumptions, such as interest rate, we turn our attention to stochastic modeling of mortality and morbidity. We use Monte Carlo method as basis for developing mortality and morbidity scenarios. Example of specimen calculations is given.
Date: 1 June - Time: 11:00 to 12:30 - Room: 251
Theme: 1.A. Stochastic dependence