Dynamic Method for the Valuation of Fair Value Insurance Liabilities: A

This paper presents a dynamic method to estimate fair value insurance liabilities for the whole book (with separate but correlated lines) of business. The model studies the aggregate liability without assuming independence of individual losses. A non-traditional approach is proposed which estimates the fair value liability based on a stotashic model of individual losses. Using the contingent claim analysis, the fair value liability are approximated by solving a partial differential equation. Parameters estimation, correlations measurement and implications of tile model are also discussed in the study. Comparisons of the proposed method to tile existing methods are given for application purpose.