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Scenario Analysis for a Multi-Period Diffusion Model of Risk

Published online by Cambridge University Press:  09 August 2013

Vsevolod K. Malinovskii
Vsevolod K. Malinovskii*
Affiliation:
Finance Academy, 125468, Leningradskiy prosp., 49, Moscow, Russia, and Steklov Mathematical Institute, 119991, Gubkina Str., 8, Moscow, Russia, E-mail: malinov@orc.ru, malinov@mi.ras.ru, URL: http://www.actlab.ru
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Abstract

This paper extends and develops the results of a previous paper Malinovskii (2007). Dealing with a simplistic diffusion multi-year model of insurance operations, this paper illustrates the adaptive control approach when the object of control is the balance of solvency and equity. Compared to the previous paper, a new element is the “scenario of nature”, or the incomplete knowledge of future risk, which is quite often the case in insurance. It introduces a new and inevitable randomness in the model and leads to a qualitative difference in its behavior.

Keywords

Multi-period insurance processDiffusion annual mechanismsVolatile scenarioSolvencyEquityAdaptive control strategies
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 39 , Issue 2 , November 2009 , pp. 649 - 676
Copyright
Copyright © International Actuarial Association 2009

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