Insurers will use derivatives to match duration, says Fitch
In the previous article in this series (A primer in replicating portfolios), Adam Koursaris explored a set of useful principles for replication -- general facts that govern the use of replicating portfolios in asset-liability modelling. Now he examines practical aspects of RPs in insurance capital calculation.
Solvency II's approach to valuing assets and liabilities presents additional challenges for insurers in managing the volatility this creates. Michael Faulkner reports.
In his previous three articles in this series, Adam Koursaris looked at different methods that could be used to calculate the solvency capital requirement (SCR) where companies face an inherently nested stochastic problem. He now focuses on the replicating portfolio (RP) technique.