Valuation and Hedging
This course aims to teach students the techniques of quantitative finance and apply them to insurance contracts. The underlying principle is that the market-consistent value of an (insurance) contract is based on the market value of a replicating portfolio plus an 'add-on' for the remaining (unhedgeable) risk.
- Market-consistent valuation and total balance sheet approach in regulation
- Pricing and hedging using derivatives, such as futures, swaps and swaptions
- Stochastic calculus and option theory with applications to insurers (e.g. embedded unit linked options)
- Stochastic interest rate models and interest rate options with applications to insurers (e.g. embedded profit sharing options)
- Pricing of nonhedgeable risks (incomplete markets): using cost-of-capital method or actuarial pricing operators
- Simulation techniques: (least-squares) Monte-Carlo
- Understanding the role of market-consistent valuation in managing the insurer's balance sheet and in regulation
- Modelling of stochastic financial processes using analytical and numerical techniques
- Valuation and hedging (replicating portfolio) of liabilities including (embedded) options and garantuees
- Options, Futures and other Derivates, John C. Hull
- Lecture notes to be distributed by lecturer
R: you can download this program and the manuals (for installation and use of the program) for free via http://www.r-project.org/.
Written exam meeting 1, 2, 3 and 4.
Dr. K.B. Gubbels