On the cost-of-capital rate under incomplete market valuation
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On the cost-of-capital rate under incomplete market valuation. / Albrecher, Hansjörg; Eisele, Karl Theodor; Steffensen, Mogens; Wüthrich, Mario V.
I: Journal of Risk and Insurance, Bind 89, 2022, s. 1139–1158.Publikation: Bidrag til tidsskrift › Tidsskriftartikel › Forskning › fagfællebedømt
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TY - JOUR
T1 - On the cost-of-capital rate under incomplete market valuation
AU - Albrecher, Hansjörg
AU - Eisele, Karl Theodor
AU - Steffensen, Mogens
AU - Wüthrich, Mario V.
N1 - Publisher Copyright: © 2022 The Authors. Journal of Risk and Insurance published by Wiley Periodicals LLC on behalf of American Risk and Insurance Association.
PY - 2022
Y1 - 2022
N2 - In this paper we discuss the concept of the cost-of-capital (CoC) rate for an insurance company as an equilibrium in the economic triangle of policyholders, shareholders, and the regulator. This provides a possible rationalization and an economic foundation for a quantity that is widely used in practice but whose value is typically neither technically nor economically well justified. We show how it can be well founded in such a triangular equilibrium. Under a simple one-period model and a valuation procedure of a two-price economy for illiquid assets we provide a corresponding economic-theoretical quantification for the CoC rate. The resulting rates are illustrated by a number of concrete numerical examples.
AB - In this paper we discuss the concept of the cost-of-capital (CoC) rate for an insurance company as an equilibrium in the economic triangle of policyholders, shareholders, and the regulator. This provides a possible rationalization and an economic foundation for a quantity that is widely used in practice but whose value is typically neither technically nor economically well justified. We show how it can be well founded in such a triangular equilibrium. Under a simple one-period model and a valuation procedure of a two-price economy for illiquid assets we provide a corresponding economic-theoretical quantification for the CoC rate. The resulting rates are illustrated by a number of concrete numerical examples.
KW - cost of capital
KW - insurance
KW - risk margin
KW - solvency capital requirements
KW - valuation
UR - http://www.scopus.com/inward/record.url?scp=85138739082&partnerID=8YFLogxK
U2 - 10.1111/jori.12406
DO - 10.1111/jori.12406
M3 - Journal article
AN - SCOPUS:85138739082
VL - 89
SP - 1139
EP - 1158
JO - Journal of Risk and Insurance
JF - Journal of Risk and Insurance
SN - 0022-4367
ER -
ID: 322803188