Market-consistent valuation: a step towards calculation stability

Fabrice Borel-Mathurin (1) , Julien Vedani (2)

1 ACPR - Autorité de Contrôle Prudentiel et de Résolution
2 SAF - Laboratoire de Sciences Actuarielle et Financière

In this paper we address some of the stability issues raised by the European life insurance regulation valuation scheme. Via an in-depth study of the so-called economic valuation framework, shaped through the market-consistency contract we first point out the practical interest of one of the El Karoui, Loisel, Prigent & Vedani (2017) propositions to enforce the stability of the cutoff dates used as inputs to calibrate actuarial models. This led us to delegitimize the argument of the no-arbitrage opportunity as a regulatory criteria to frame the valuation, and as an opposition to the previously presented approach. Then we display tools to improve the convergence of the economic value estimations be it the V IF or the SCR, using usual variance reduction methods and a specific work on the simulation seeds. Through various implementations on a specific portfolio and valuation model we decrease the variance of the estimators by over 16 times.

Mots clés: European regulation; life insurance; no-arbitrage opportunity; economic valuation conver- gence; market-consistency *

Domaines: Finance quantitative [q-fin.CP]; Statistiques [stat]; Mathématiques [math]; Informatique [cs]; Economies et finances

Fabrice Borel-Mathurin, Julien Vedani. Market-consistent valuation: a step towards calculation stability. 2019. ⟨hal-02282378⟩