chapter  8
84 Pages

Simulating Actuarial Models

In the preceding chapters we have been interested in pricing isolated financial contracts. There, the main principle to deal with market risk, the risk of losses due to unfavourable price moves, is to switch to an equivalent market martingale measure and calculate the present value of a financial contract. This approach is based on the assumption that assets underlying these contracts can be traded to reduce or even eliminate the inherent risks.