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Exact cash-account deflator for the G2++ model

Author

Listed:
  • Francesco Strati

    (KPMG Advisory SpA, Actuarial Services, Milan, Italy)

  • Luca G. Trussoni

    (#x2020;LTLogics, Italy)

Abstract

In this paper, we shall propose a Monte Carlo simulation technique applied to a G2++ model: even when the number of simulated paths is small, our technique allows to find a precise simulated deflator. In particular, we shall study the transition law of the discrete random variable:∫[t,t+Δt]x(τ)+y(τ)dτin the time span [t,t+Δt] conditional on the observation at time t, and we apply it in a recursive way to build the different paths of the simulation. We shall apply the proposed technique to the insurance industry, and in particular to the issue of pricing insurance contracts with embedded options and guarantees.

Suggested Citation

  • Francesco Strati & Luca G. Trussoni, 2020. "Exact cash-account deflator for the G2++ model," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 7(01), pages 1-14, March.
    • Handle: RePEc:wsi:ijfexx:v:07:y:2020:i:01:n:s2424786320500097
    DOI: 10.1142/S2424786320500097
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    References listed on IDEAS

    as
    1. Vladimir Ostrovski, 2016. "Efficient and exact simulation of the Gaussian affine interest rate models," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 3(02), pages 1-11, June.
    2. Nicole El Karoui & Stéphane Loisel & Jean-Luc Prigent & Julien Vedani, 2017. "Market inconsistencies of the market-consistent European life insurance economic valuations: pitfalls and practical solutions," Post-Print hal-01242023, HAL.
    Full references (including those not matched with items on IDEAS)

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