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Testing the Least-Squares Monte Carlo Method for the Evaluation of Capital Requirements in Life Insurance

Author

Listed:
  • Massimo Costabile

    (Department of Economics, Statistics and Finance, University of Calabria, Ponte Bucci Cubo 0 C, 87036 Rende (CS), Italy)

  • Fabio Viviano

    (Department of Economics and Statistics, University of Udine, Via Tomadini 30/A, 33100 Udine UD, Italy)

Abstract

In this paper, we test the efficiency of least-squares Monte Carlo method to estimate capital requirements in life insurance. We choose a simplified Gaussian evaluation framework where closed-form formulas are available and allow us to obtain solid benchmarks. Extensive numerical experiments were conducted by considering different combinations of simulation runs and basis functions, and the corresponding results are illustrated.

Suggested Citation

  • Massimo Costabile & Fabio Viviano, 2020. "Testing the Least-Squares Monte Carlo Method for the Evaluation of Capital Requirements in Life Insurance," Risks, MDPI, vol. 8(2), pages 1-13, May.
    • Handle: RePEc:gam:jrisks:v:8:y:2020:i:2:p:48-:d:359746
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    References listed on IDEAS

    as
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    5. Floryszczak, Anthony & Le Courtois, Olivier & Majri, Mohamed, 2016. "Inside the Solvency 2 Black Box: Net Asset Values and Solvency Capital Requirements with a least-squares Monte-Carlo approach," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 15-26.
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    Full references (including those not matched with items on IDEAS)

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