On the hedging of liabilities with an endogenous profit sharing mechanism

Frédéric Sart (1)

1 Risk Management

The fair replication method is a method designed to value liabilities with an endogenous profit sharing mechanism, i.e. based on the book yield of the backing assets. The basic idea is to construct a hypothetical portfolio, the fair replicating portfolio (FRP), whose cash flows are scenario-invariant. The method is a computationally efficient alternative to traditional stochastic modeling. It may be particularly useful in applications where extensive calculations of best estimate of liabilities are required.

Mots clés: Best estimate of liabilities; Life insurance; Profit sharing mechanism; Replicating portfolio; Solvency II

Domaines: Économie et finance quantitative [q-fin]; Finance quantitative [q-fin.CP]; Gestion des risques [q-fin.RM]

Frédéric Sart. On the hedging of liabilities with an endogenous profit sharing mechanism. Bulletin Français d'Actuariat, 2016, 16 (31), pp.139-155. ⟨hal-01574949⟩