The Current Value of the Mathematical Provision: A Financial Risk Prospect

Problems and Perspectives in Management, Vol. 5, No. 2, 2007

14 Pages Posted: 28 Jun 2007

See all articles by Rosa Cocozza

Rosa Cocozza

University of Naples Federico II - Faculty of Economics

Emilia Di Lorenzo

University of Naples Federico II - Faculty of Economics

Marilena Sibillo

Università degli Studi di Salerno

Abstract

The paper addresses the question of the calculation of the current value of the mathematical provision and moulds it in a deterministic and stochastic scenario, using a proper term structure of interest rates estimated by means of a Cox-Ingersoll-Ross model. It provides a complete and original year-by-year evaluation model for the business performance, and a closed solution for the current evaluation of the reserve, together with a comprehensive insight into the dynamics of the reserve connected to the selection of a defined term structure of interest rates. Moreover, the calculation of the VaR of the mathematical provision is prospected as risk measure useful to appreciate also the evaluation rate risk. Future research prospects concern the selection of the stochastic process used to describe the dynamics of the interest rates and the possible managerial and regulatory application of a VaR measure. The modelling has been applied, as an exemplification, to a life annuity portfolio but it can be easily replicated for any kind of policy and any kind of portfolios even non homogeneous.

Keywords: Risk indicators, life insurance, solvency, financial risk, demographic risk

JEL Classification: G22

Suggested Citation

Cocozza, Rosa and Di Lorenzo, Emilia and Sibillo, Marilena, The Current Value of the Mathematical Provision: A Financial Risk Prospect. Problems and Perspectives in Management, Vol. 5, No. 2, 2007, Available at SSRN: https://ssrn.com/abstract=997012

Rosa Cocozza (Contact Author)

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy
+39/81675083 (Phone)

HOME PAGE: http://www.docenti.unina.it/rosa.cocozza

Emilia Di Lorenzo

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia, Monte S. Angelo
Napoli, 80126
Italy

Marilena Sibillo

Università degli Studi di Salerno ( email )

Campus Universitario, 84084 Fisciano
Salerno, 80131
Italy

HOME PAGE: http://www.unisa.it//Facolta/Economia/docenti/Sibillo_/home.php?cms=yes

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