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<p>This study explores the application of Empirical Martingale Simulation (EMS) in life insurance valuations, particularly in the context of Asset-Liability Management (ALM) under the Solvency II Directive. The paper focuses on addressing discrepancies between theoretical and empirical valuations, referred to as ’leakage’, which can arise due to the long-term projections required in life insurance. By employing EMS, this research demonstrates how it ensures that simulated asset price paths satisfy the martingale property empirically, thus adhering to rational valuation bounds and enhancing computational efficiency. The findings advocate for EMS as an effective tool in enhancing market consistency and reliability of the insurance valuation models, crucial for meeting regulatory requirements and managing financial risks in the insurance industry.</p>

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Addressing theoretical and empirical discrepancies in life insurance valuations through EMS

  • 期刊论文

  • 发表日期：

    2025年4月19日

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  • Francesco Strati

摘要

This study explores the application of Empirical Martingale Simulation (EMS) in life insurance valuations, particularly in the context of Asset-Liability Management (ALM) under the Solvency II Directive. The paper focuses on addressing discrepancies between theoretical and empirical valuations, referred to as ’leakage’, which can arise due to the long-term projections required in life insurance. By employing EMS, this research demonstrates how it ensures that simulated asset price paths satisfy the martingale property empirically, thus adhering to rational valuation bounds and enhancing computational efficiency. The findings advocate for EMS as an effective tool in enhancing market consistency and reliability of the insurance valuation models, crucial for meeting regulatory requirements and managing financial risks in the insurance industry.