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Seminario dottorato: “An introduction to stochastic control in discrete time with an application to the securitization of systematic life insurance risk”

Wednesday 13 March 2019, h.14:30 - Room 2BC30 - Maren Diane Schmeck

ARGOMENTI: Seminars Ph.D. Program

Wednesday 13 March 2019, h.14:30
Room 2BC30
Maren Diane Schmeck (Univ. Bielefeld, Germany)
“An introduction to stochastic control in discrete time with an application to the securitization of systematic life insurance risk”

Abstract
The basic idea behind insurance is to diversify risks. If a systematic risk is involved, this idea does not work well any more. So the idea arose to transfer the insurance risk to financial markets. Even though not perfectly linked to the own portfolio, these securitisation products work similarly to a reinsurance contract. For an investor, the products give a possibility to diversify an investment portfolio. Also insurers may act as investor and in this way diversify their own risk to regions where they have not underwritten contracts. The literature on securitisation products considers either the point of view of an investor, or the product is used to perform a Markovitz optimisation. From the point of view of an insurer, this only partially answers the question how to choose a securitisation portfolio. We will here use utility theory and stochastic control in discrete time to determine the optimal portfolio. In order to simplify the presentation we consider the case of a mortality catastrophe bond. Similar consideration would also apply for other securitisation products.
The first part of the presentation will give an introduction to the methodology that we use in our research: stochastic control in discrete time. That is, we will look at the dynamic programming principle, also called Bellman’s equation and some results about the optimal strategy.

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