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Article

A Least-Squares Monte Carlo Framework in Proxy Modeling of Life Insurance Companies

1
Department of Mathematics, TU Kaiserslautern, Erwin Schrödinger Strasse, Geb. 48, 67653 Kaiserslautern, Germany
2
Mathematical Institute, University Cologne, Weyertal 86-90, 50931 Cologne, Germany
3
Department Financial Mathematics, Fraunhofer ITWM, Fraunhofer-Platz 1, 67663 Kaiserslautern, Germany
*
Author to whom correspondence should be addressed.
Risks 2018, 6(2), 62; https://doi.org/10.3390/risks6020062
Received: 29 March 2018 / Revised: 5 June 2018 / Accepted: 7 June 2018 / Published: 11 June 2018
(This article belongs to the Special Issue Capital Requirement Evaluation under Solvency II framework)
The Solvency II directive asks insurance companies to derive their solvency capital requirement from the full loss distribution over the coming year. While this is in general computationally infeasible in the life insurance business, an application of the Least-Squares Monte Carlo (LSMC) method offers a possibility to overcome this computational challenge. We outline in detail the challenges a life insurer faces, the theoretical basis of the LSMC method and the necessary steps on the way to a reliable proxy modeling in the life insurance business. Further, we illustrate the advantages of the LSMC approach via presenting (slightly disguised) real-world applications. View Full-Text
Keywords: Least-Squares Monte Carlo method; proxy modeling; life insurance; Solvency II Least-Squares Monte Carlo method; proxy modeling; life insurance; Solvency II
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MDPI and ACS Style

Krah, A.-S.; Nikolić, Z.; Korn, R. A Least-Squares Monte Carlo Framework in Proxy Modeling of Life Insurance Companies. Risks 2018, 6, 62. https://doi.org/10.3390/risks6020062

AMA Style

Krah A-S, Nikolić Z, Korn R. A Least-Squares Monte Carlo Framework in Proxy Modeling of Life Insurance Companies. Risks. 2018; 6(2):62. https://doi.org/10.3390/risks6020062

Chicago/Turabian Style

Krah, Anne-Sophie, Zoran Nikolić, and Ralf Korn. 2018. "A Least-Squares Monte Carlo Framework in Proxy Modeling of Life Insurance Companies" Risks 6, no. 2: 62. https://doi.org/10.3390/risks6020062

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