Research Group of Prof. Dr. M. Griebel
Institute for Numerical Simulation
maximize

Numerical Simulation for Asset/Liability Management in Insurance Industry

Description

In this project, we will consider the simulation and analysis of risks which are arising for asset/liability management of insurance products. During the strategical administation of an insurance product, future risks have to be estimated under suitable model assumptions and the various parameters of the product have to be optimized. Therefore, in long-term simulation runs, a large number of expectations as high-dimensional integrals have to be computed. Due to the high accuracy requirements, for efficiency classical methods like Monte Carlo or Quasi-Monte Carlo integration cannot be applied here.

Therefore, we propose the usage of sparse grid integration methods. The advantage of this approach is that the work which is necessary to solve the high-dimensional integration problems is nearly independent of the dimension, similar to Monte Carlo or Quasi-Monte Carlo methods. In the case of smooth integrands, however, which arise during the modelling of asset/liability management problems, the convergence rate of sparse grid methods is substantially higher than the rate of Monte Carlo-like methods. Further improvements bring the usage of nested quadrature formulas with maximum exactness, dimension-adaptive refinement and smoothness-preserving transformations.

These new numerical methods for the first time allow to efficiently solve the problems which are necessary for asset/liability management of insurance products. This way, it is possible to optimize such products with the help of numerical simulations and to estimate the arising risks under various model assuptions.

Partners

This project is funded by the BMBF priority program "Mathematics for innovations in industry and services". Cooperation partner is Deutscher Herold, Zürich Gruppe, Bonn.

References

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