Assessing the Market Value of Safety Loadings

François Quittard-Pinon~Carole Bernard~Olivier Le Courtois, France

This article aims at linking conceptually the default puts of (risk-neutral) optional finance to the safety loadings of (historical) actuarial theory that typically serve to reduce bankruptcy risk. We illustrate this study by detailing the contractual provisions underlying typical participating contracts (described and priced by Jørgensen [2001] or Bernard, Le Courtois and Quittard-Pinon [2005b], to quote only a few). Our analysis aims at extending and applying the ideas proposed by Buehlmann [2004], and is sequencing the famous and fundamental works of Merton [1974], Black and Cox [1976], and Margrabe [1978]. Beyond the chosen examples, the ultimate goal of this work is to let understand and detail some links and similarities between contingent claims based hedges and standard actuarial safety loadings.
Date: 1 June - Time: 11:00 to 12:30 - Room: 241
Theme: 9.A. Various topics