Best-estimates in bond markets with reinvestment risk

Artikel

The concept of best-estimate, prescribed by regulators to value insurance liabilities for accounting and solvency purposes, has recently been discussed extensively in the industry and related academic literature. To differentiate hedgeable and non-hedgeable risks in a general case, recent literature defines best-estimates using orthogonal projections of a claim on the space of replicable payoffs. In this paper, we apply this concept of best-estimate to long-maturity claims in a market with reinvestment risk, since in this case the total liability cannot easily be separated into hedgeable and non-hedgeable parts. We assume that a limited number of short-maturity bonds are traded, and derive the best-estimate price of bonds with longer maturities, thus obtaining a best-estimate yield curve. We therefore use the multifactor Vasi¡cek model and derive within this framework closed-form expressions for the best-estimate prices of long-term bonds.

Angaben zum Objekt

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Journal: Risks ; ISSN: 2227-9091 ; Volume: 3 ; Year: 2015 ; Issue: 3 ; Pages: 250-276 ; Basel: MDPI

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: best-estimate price ; reinvestment risk ; dynamic hedging ; sequential local risk minimization ; incomplete market ; state-price deflator ; long-term bonds

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): MacKay, Anne ; Wüthrich, Mario V.
• Ereignis: Veröffentlichung
• (wer): MDPI
• (wo): Basel
• (wann): 2015

Weitere Informationen

• DOI: doi:10.3390/risks3030250
• Handle: http://hdl.handle.net/10419/167855
• Letzte Aktualisierung: 15.03.1970, 00:00 MEZ